TAXES CONSOLIDATION ACT, 1997

• (a) at the time of the disposal the asset constitutes a material interest in an offshore fund which at that time is operating equalisation arrangements,

• (b) the fund is not and has not at any material time (within the meaning of section 741(7)) been a non-qualifying offshore fund, and

• (c) the proceeds of the disposal are not to be taken into account as a trading receipt.

• (4) This Chapter shall not by virtue of subsection (3) apply to a disposal if—

• (a) the disposal takes place during the period mentioned in subsection (1)(a), and

• (b) throughout so much of that period as precedes the disposal the income of the offshore fund concerned has been of the nature referred to in paragraph 3(1) of Schedule 19.

• (5) An event which apart from section 584(3) would constitute a disposal of an asset shall constitute such a disposal for the purpose of determining whether by virtue of subsection (3) there is a disposal to which this Chapter applies.

• (6) The reference in subsection (5) to section 584(3) shall be deemed to include a reference to that section as applied by section 586 or 733 but not as applied by section 585.

743 Material interest in offshore funds. [FA90 s65]

743.—(1) In this Chapter, references to a material interest in an offshore fund shall be construed as references to such an interest in any of the following—

• (a) a company resident outside the State,

• (b) a unit trust scheme the trustees of which are not resident in the State, and

• (c) any arrangements not within paragraph (a) or (b) which take effect by virtue of the law of a territory outside the State and which under that law create rights in the nature of co-ownership (without restricting that expression to its meaning in the law of the State),

and any reference in this Chapter to an offshore fund shall be construed as a reference to any such company, unit trust scheme or arrangements in which any person has an interest which is a material interest.

• (2) Subject to subsections (3) to (9), a person's interest in a company, unit trust scheme or arrangements shall be a material interest if at the time when the person acquired the interest it could be reasonably expected that at some time during the period of 7 years beginning at the time of the acquisition the person would be able to realise the value of the interest (whether by transfer, surrender or in any other manner).

• (3) For the purposes of subsection (2), a person shall be deemed to be able to realise the value of an interest if the person can realise an amount which is reasonably approximate to that portion which the interest represents (directly or indirectly) of the market value of the assets of the company or, as the case may be, of the assets subject to the scheme or arrangements.

• (4) For the purposes of subsections (2) and (3)—

• (a) a person shall be deemed to be able to realise a particular amount if the person is able to obtain that amount either in money or in the form of assets to the value of that amount, and

• (b) if at any time an interest in an offshore fund has a market value which is substantially greater than the portion which the interest represents, as mentioned in subsection (3), of the market value at that time of the assets concerned, the ability to realise such a market value of the interest shall not be regarded as an ability to realise such an amount as is referred to in that subsection.

• (5) An interest in a company, scheme or arrangements shall be deemed not to be a material interest if it is either—

• (a) an interest in respect of any loan capital or debt issued or incurred for money which in the ordinary course of business of banking is loaned by a person carrying on that business, or

• (b) a right arising under a policy of insurance.

• (6) Shares in a company within subsection (1)(a) (in this section referred to as “the overseas company”) shall not constitute a material interest if—

• (a) the shares are held by a company and the holding of them is necessary or desirable for the maintenance and development of a trade carried on by the company or a company associated with it,

• (b) the shares confer at least 10 per cent of the total voting rights in the overseas company and a right in the event of a winding up to at least 10 per cent of the assets of that company remaining after the discharge of all liabilities having priority over the shares,

• (c) not more than 10 persons hold shares in the overseas company and all the shares in that company confer both voting rights and a right to participate in the assets on a winding up, and

• (d) at the time of its acquisition of the shares the company had such a reasonable expectation as is referred to in subsection (2) by reason only of the existence of either or both—

• (i) an arrangement under which, at some time within the period of 7 years beginning at the time of acquisition, that company may require the other participators to purchase its shares, and

• (ii) provisions of either an agreement between the participators or the constitution of the overseas company under which the company will be wound up within a period which is or is reasonably expected to be shorter than the period referred to in subsection (2),

and in this paragraph “participators” means the persons holding shares which are within paragraph (c).

• (7) For the purposes of subsection (6)(a), a company shall be associated with another company if one company has control (within the meaning of section 432) of the other company or both companies are under the control (within the meaning of that section) of the same person or persons.

• (8) An interest in a company within subsection (1)(a) shall be deemed not to be a material interest at any time when the following conditions are satisfied—

• (a) that the holder of the interest has the right to have the company wound up, and

• (b) that in the event of a winding up the holder is, by virtue of the interest and any other interest which the holder then holds in the same capacity, entitled to more than 50 per cent of the assets remaining after the discharge of all liabilities having priority over the interest or interests concerned.

• (9) The market value of any asset for the purposes of this Chapter shall be determined in the like manner as it would be determined for the purposes of the Capital Gains Tax Acts except that, in the case of an interest in an offshore fund for which there are separate published buying and selling prices, section 548(5) shall apply with any necessary modifications for determining the market value of the interest for the purposes of this Chapter.

744 Non-qualifying offshore funds. [FA90 s66]

744.—(1) For the purposes of this Chapter, an offshore fund shall be a non-qualifying fund except during an account period of the fund in respect of which the fund is certified by the Revenue Commissioners as a distributing fund.

• (2) An offshore fund shall not be certified as a distributing fund in respect of an account period unless with respect to that period the fund pursues a full distribution policy within the meaning of Part 1 of Schedule 19.

• (3) Subject to Part 2 of Schedule 19, an offshore fund shall not be certified as a distributing fund in respect of any account period if at any time during that period—

• (a) more than 5 per cent by value of the assets of the fund consists of interests in other offshore funds,

• (b) subject to subsections (4) and (5), more than 10 per cent by value of the assets of the fund consists of interests in a single company,

• (c) the assets of the fund include more than 10 per cent of the issued share capital of any company or of any class of that share capital, or

• (d) subject to subsection (6), there is more than one class of material interest in the offshore fund and they do not all receive proper distribution benefits within the meaning of subsection (7).

• (4) For the purposes of subsection (3)(b), in any account period the value, expressed as a percentage of the value of all the assets of an offshore fund, of that portion of the assets of the fund which consists of an interest in a single company shall be determined as at the most recent occasion (whether in that account period or an earlier one) on which the fund acquired an interest in that company for consideration in money or in money's worth; but for this purpose there shall be disregarded any occasion—

• (a) on which the interest acquired constituted the new holding for the purposes of section 584, including that section as applied by section 585 or 586, and

• (b) on which no consideration fell to be given for the interest acquired, other than the interest which constituted the original shares for the purposes of section 584, including that section as so applied.

• (5) Except for the purpose of determining the total value of the assets of an offshore fund, an interest in a company shall be disregarded for the purposes of subsection (3)(b) if—

• (a) the company carries on a banking business in the State or elsewhere which provides current or deposit account facilities in any currency for members of the public and bodies corporate, and

• (b) the interest consists of a current or deposit account provided in the normal course of the company's banking business.

• (6) There shall be disregarded for the purposes of subsection (3)(d) any interests in an offshore fund which—

• (a) are held solely by persons employed or engaged in or about the management of the assets of the fund,

• (b) carry no right or expectation to participate directly or indirectly in any of the profits of the fund, and

• (c) on a winding up or on redemption carry no right to receive anything other than the return of the price paid for the interests.

• (7) Where in any account period of an offshore fund there is more than one class of material interests in the fund, the classes of interests shall not (for the purposes of subsection (3)(d)) all receive proper distribution benefits unless, were each class of interests and the assets which that class represents interests in and assets of a separate offshore fund, each of those separate funds would (with respect to that period) pursue a full distribution policy within the meaning of Part 1 of Schedule 19.

• (8) For the purposes of this Chapter and Schedule 19, an account period of an offshore fund shall begin—

• (a) on the 6th day of April, 1990, or, if it is later, whenever the fund begins to carry on its activities, and

• (b) whenever an account period of the fund ends without the fund then ceasing to carry on its activities.

• (9) For the purposes of this Chapter and Schedule 19, an account period of an offshore fund shall end on the first occurrence of any of the following—

• (a) the expiration of 12 months from the beginning of the period;

• (b) an accounting date of the fund or, if there is a period for which the fund does not make up accounts, the end of that period;

• (c) the fund ceasing to carry on its activities.

• (10) For the purposes of this Chapter and Schedule 19—

• (a) an account period of an offshore fund which is a company within section 743 (1)(a) shall end if and at the time when the company ceases to be resident outside the State, and

• (b) an account period of an offshore fund which is a unit trust scheme within section 743(1)(b) shall end if and at the time when the trustees of the scheme become resident in the State.

• (11) Parts 3 and 4 of Schedule 19 shall apply with respect to the procedure for and in connection with the certification of an offshore fund as a distributing fund.

745 Charge to income tax or corporation tax of offshore income gain. [FA90 s67]

745.—(1) Where a disposal to which this Chapter applies gives rise, in accordance with Schedule 20, to an offshore income gain, then, subject to this section, the amount of that gain shall be treated for the purposes of the Tax Acts as—

• (a) income arising at the time of the disposal to the person making the disposal, and

• (b) constituting profits or gains chargeable to tax under Case IV of Schedule D for the chargeable period (within the meaning of section 321(2)) in which the disposal is made.

• (2) Subject to subsection (3), sections 25(2)(b), 29 and 30 shall apply in relation to income tax or corporation tax in respect of offshore income gains as they apply in relation to capital gains tax or corporation tax in respect of chargeable gains.

• (3) In the application of sections 29 and 30 in accordance with subsection (2), section 29(3)(c) shall apply with the deletion of “situated in the State”.

• (4) In the case of individuals resident or ordinarily resident but not domiciled in the State, subsections (4) and (5) of section 29 shall apply in relation to income tax chargeable by virtue of subsection (1) on an offshore income gain as they apply in relation to capital gains tax in respect of gains accruing to such individuals from the disposal of assets situated outside the State.

• (5)
• (a) In this subsection, “charity” has the same meaning as in section 208, and “market value” shall be construed in accordance with section 548.

• (b) A charity shall be exempt from tax in respect of an offshore income gain if the gain is applicable and applied for charitable purposes; but, if the property held on charitable trusts ceases to be subject to charitable trusts and that property represents directly or indirectly an offshore income gain, the trustees shall be treated as if they had disposed of and immediately reacquired that property for a consideration equal to its market value, any gain (calculated in accordance with Schedule 20) accruing being treated as an offshore income gain not accruing to a charity.

• (6) In any case where—

• (a) a disposal to which this Chapter applies is a disposal of settled property within the meaning of the Capital Gains Tax Acts, and

• (b) for the purposes of the Capital Gains Tax Acts, the general administration of the trusts is ordinarily carried on outside the State and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the State,

then, subsection (1) shall not apply in relation to any offshore income gain to which the disposal gives rise.

746 Offshore income gains accruing to persons resident or domiciled abroad. [FA90 s68]

746.—(1) Subject to subsection (2), section 579 shall apply in relation to its application to offshore income gains as if—

• (a) for any reference to a chargeable gain there were substituted a reference to an offshore income gain,

• (b) in subsection (2) of that section—

• (i) for “the Capital Gains Tax Acts” there were substituted “the Tax Acts”, and

• (ii) for “capital gains tax under section 31” there were substituted “income tax by virtue of section 745”,

and

• (c) in subsection (5) of that section—

• (i) for “any capital gains tax payable” there were substituted “any income tax or corporation tax payable”, and

• (ii) for “for the purposes of income tax” there were substituted “for the purposes of income tax, corporation tax”.

• (2) Where in any year of assessment—

• (a) under section 579(3), as it applies apart from subsection (1), a chargeable gain is to be attributed to a beneficiary, and

• (b) under section 579(3), as applied by subsection (1), an offshore income gain is also to be attributed to the beneficiary,

section 579 shall apply as if it required offshore income gains to be attributed before chargeable gains.

• (3) Section 590 shall apply in relation to its application to offshore income gains as if—

• (a) for any reference to a chargeable gain there were substituted a reference to an offshore income gain,

• (b) for the reference in subsection (6) of that section to capital gains tax there were substituted a reference to income tax or corporation tax, and

• (c) paragraphs (b) and (c) of subsection (4), and subsection (7), of that section were deleted.

• (4) Section 917 shall apply in relation to offshore income gains as if—

• (a) for “chargeable gains” there were substituted “offshore income gains”, and

• (b) for “capital gains tax under section 579 or 590” there were substituted “income tax or corporation tax under section 579 or 590, as applied by section 746”.

• (5) Subject to subsection (6), for the purpose of determining whether an individual ordinarily resident in the State has a liability for income tax in respect of an offshore income gain arising on a disposal to which this Chapter applies where the disposal is made by a person resident or domiciled out of the State—

• (a) sections 806 and 807 shall apply as if the offshore income gain arising to the person resident or domiciled out of the State constituted income becoming payable to such person, and

• (b) accordingly any reference in sections 806 and 807 to income of, or payable or arising to, such person shall include a reference to the offshore income gain arising to such person by reason of the disposal to which this Chapter applies.

• (6) To the extent that an offshore income gain is treated by virtue of subsection (1) or (3) as having accrued to any person resident or ordinarily resident in the State, that gain shall not be deemed to be the income of any individual for the purposes of sections 806 and 807 or Part 31.

747 Deduction of offshore income gain in determining capital gain. [FA90 s69(1) to (7)]

747.—(1) This section shall apply where a disposal (being a disposal to which this Chapter applies) gives rise to an offshore income gain and, if that disposal also constitutes the disposal of the interest concerned for the purposes of the Capital Gains Tax Acts, that disposal is referred to in this section as “the disposal for the purposes of the Capital Gains Tax Acts”.

• (2) So far as relates to an offshore income gain which arises on a material disposal (within the meaning of Part 1 of Schedule 20), subsections (3) and (4) shall apply in relation to the disposal for the purposes of the Capital Gains Tax Acts in substitution for section 551 (2).

• (3) Subject to subsections (4) to (7), in the computation in accordance with the Capital Gains Tax Acts of any gain accruing on the disposal for the purposes of those Acts, a sum equal to the offshore income gain shall be deducted from the sum which would otherwise constitute the amount or value of the consideration for the disposal.

• (4) Where the disposal for the purposes of the Capital Gains Tax Acts is of such a nature that by virtue of section 557 an apportionment is to be made of certain expenditure, no deduction shall be made by virtue of subsection (3) in determining for the purposes of the apportionment in section 557 (2) the amount or value of the consideration for the disposal.

• (5) Where the disposal for the purposes of the Capital Gains Tax Acts forms part of a transfer to which section 600 applies, then, for the purposes of subsection (5)(b) of that section, the value of the whole of the consideration received by the transferor in exchange for the business shall be taken to be what it would be if the value of the consideration (other than shares so received by the transferor) were reduced by a sum equal to the offshore income gain.

• (6) Where the disposal to which this Chapter applies constitutes such a disposal by virtue of section 741(6) or 742(5), the Capital Gains Tax Acts shall apply as if an amount equal to the offshore income gain to which the disposal gives rise were given (by the person making the exchange concerned) as consideration for the new holding (within the meaning of section 584(1).

• (7) In any case where—

• (a) a disposal to which this Chapter applies by virtue of subsection (3) of section 742 is made otherwise than to the offshore fund concerned or to the persons referred to in subsection (2)(b) of that section,

• (b) subsequently a distribution which is referable to the asset disposed of is paid either to the person who made the disposal or to a person connected with such person, and

• (c) the disposal gives rise (in accordance with Part 2 of Schedule 20) to an offshore income gain,

then, for the purposes of the Tax Acts, the amount of the first distribution within paragraph (b) shall be taken to be reduced or, as the case may be, extinguished by deducting from such amount an amount equal to the offshore income gain referred to in paragraph (c) and, if that amount exceeds the amount of that first distribution, the balance shall be set against the second and, where necessary, any subsequent distribution within paragraph (b) until the balance is exhausted.

PART 28 Purchase and Sale of Securities

CHAPTER 1 Purchase and sale of securities

748 Interpretation and application (Chapter 1). [ITA67 s367; F(MP)A68 s3(2) and Sch PtI; CTA76 s140(1) and Sch2 PtI par17]

748.—(1) In this Chapter and in Schedule 21—

“distribution” has the same meaning as in the Corporation Tax Acts;

“interest” includes a distribution and any dividend which is not such a distribution and, in applying references to interest in relation to such a distribution, “gross interest” or “gross amount” means the distribution together with the tax credit to which the recipient of the distribution is entitled in respect of it and “net interest” means the distribution exclusive of any such tax credit;

“person” includes any body of persons, and references to a person entitled to any exemption from income tax include, in a case of an exemption expressed to apply to income of a trust or fund, references to the persons entitled to make claims for the granting of that exemption;

“securities” includes stocks and shares;

securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or the manner in which they can be transferred.

• (2) Subject to this section, this Chapter shall apply in the case of a purchase by a person (in this Chapter referred to as “the first buyer”) of any securities and their subsequent sale by the first buyer, where the result of the transaction is that interest becoming payable in respect of the securities (in this Chapter referred to as “the interest”) is receivable by the first buyer.

• (3) This Chapter shall not apply in the case where—

• (a) the time elapsing between the purchase by the first buyer and the first buyer's taking steps to dispose of the securities exceeds 6 months, or

• (b) that time exceeds one month and in the opinion of the Revenue Commissioners the purchase and sale were each effected at the current market price and the sale was not effected in pursuance of an agreement or arrangement made before or at the time of the purchase.

• (4) An appeal shall lie to the Appeal Commissioners with respect to any opinion of the Revenue Commissioners under subsection (3)(b) in the like manner as an appeal would lie against an assessment to income tax, and the provisions of the Income Tax Acts relating to appeals shall apply accordingly.

• (5) The reference in subsection (3) to the first buyer taking steps to dispose of the securities shall be construed—

• (a) if the first buyer sold the securities in the exercise of an option the first buyer had acquired, as a reference to the first buyer's acquisition of the option, and

• (b) in any other case, as a reference to the first buyer selling the securities.

• (6)
• (a) For the purposes of this Chapter but subject to paragraph (b), a sale of securities similar to, and of the like nominal amount as, securities previously bought (in this subsection referred to as “the original securities”) shall be equivalent to a sale of the original securities and subsection (5) shall apply accordingly, and, where the first buyer bought parcels of similar securities at different times, a subsequent sale of any of the securities shall, in so far as may be, be related to the last of the parcels to be bought, and then to the last but one, and so on.

• (b) A person shall be under no greater liability to tax by virtue of this subsection than would have been the case if instead of selling the similar securities the person had sold the original securities.

• (7) Where, at the time when a trade is or is deemed to be set up and commenced, any securities form part of the trading stock belonging to the trade, those securities shall be treated for the purposes of this section as having been sold at that time in the open market by the person to whom they belonged immediately before that time and as having been purchased at that time in the open market by the person thereafter engaged in carrying on the trade, and, subject to this subsection, where there is a change in the persons engaged in carrying on a trade which is not a change on which the trade is deemed to be discontinued, this section shall apply in relation to the person so engaged after the change as if anything done to or by that person's predecessor had been done to or by that person.

749 Dealers in securities. [ITA67 s368]

749.—(1) Subject to this section, where the first buyer is engaged in carrying on a trade which consists of or comprises dealings in securities, then, in computing for any of the purposes of the Tax Acts the profits arising from or loss sustained in the trade, the price paid by the first buyer for the securities shall be reduced by the appropriate amount in respect of the interest determined in accordance with Schedule 21.

• (2) Where in the opinion of the Revenue Commissioners the first buyer is bona fide carrying on the business of a discount house in the State, or where the first buyer is a member of a stock exchange in the State who is recognised by the committee of that stock exchange as carrying on the business of a dealer, subsection (1) shall not apply in relation to securities bought in the ordinary course of such business.

• (3) Subsection (1) shall not apply if the interest is to any extent required to be taken into account under section 752 as if it were a trading receipt which had not borne tax or would to any extent be so required to be taken into account but for paragraph 2 of Schedule 22.

750 Persons entitled to exemption. [ITA67 s369(1); CTA76 s140(1) and Sch 2 Pt1 par18]

750.—Where the first buyer is entitled under any enactment to an exemption from tax which apart from this section would extend to the interest, then, subject to this section, the exemption shall not extend to an amount equal to the appropriate amount in respect of the interest determined in accordance with Schedule 21; but, if the first buyer is so entitled and any annual payment is payable by the first buyer out of the interest, the annual payment shall be deemed as to the whole of that payment—

• (a) to be paid out of profits or gains not brought into charge to tax, and section 238 shall apply accordingly, and

• (b) for the purposes of corporation tax, not to be a payment which is a charge on income.

751 Traders other than dealers in securities. [ITA67 s370; CTA76 Sch2 Pt1 par19]

751.—(1) Where the first buyer carries on a trade not within section 749, then, in ascertaining—

• (a) for the purposes of income tax, whether any, and if so what, repayment of tax is to be made to the first buyer under section 381 by reference to any loss sustained in the trade for the year of assessment the first buyer's income for which includes the interest, there shall be disregarded—

• (i) the appropriate amount in respect of the interest determined in accordance with Schedule 21, and

• (ii) any tax paid on that amount;

• (b) for the purposes of corporation tax, the income or profits against which the loss may be set off under section 157 or 396, there shall be disregarded the appropriate amount in respect of the interest determined in accordance with Schedule 21.

• (2) Where the first buyer is a body corporate and carries on a trade not within section 749 or a business consisting mainly in the making of investments, then, if any annual payment payable by the body corporate is to any extent payable out of the interest, that annual payment shall be deemed to that extent—

• (a) for the purposes of income tax, not to be payable out of profits or gains brought into charge to tax, and section 238 shall apply accordingly, and

• (b) for the purposes of corporation tax, not to be a payment which is a charge on income.

CHAPTER 2 Purchases of shares by financial concerns and persons exempted from tax, and restriction on relief for losses by repayment of tax in case of dividends paid out of accumulated profits

752 Purchases of shares by financial concerns and persons exempted from tax. [ITA67 s371; F(MP)A68 s3(2) and Sch PtI; CTA76 s140(1), s164, Sch2 Pt1 par20 and Sch3 PtI]

752.—(1) For the purposes of this Chapter and Schedule 22—

• (a) references to a dividend shall, except where the context otherwise requires, be construed as including references to a distribution, and to an amount which under any enactment is to be treated as a distribution, made on or after the 6th day of April, 1976,

• (b) in relation to such a distribution, including an amount to be so treated as a distribution, references to a dividend being paid or becoming payable or being received or becoming receivable on shares shall be construed as references to a distribution or an amount to be so treated as a distribution being made or received in respect of shares or securities, and

• (c) in applying references to a dividend in relation to a distribution, “gross amount” or “gross dividend” means the distribution together with the tax credit to which the recipient of the distribution is entitled in respect of it, and “net amount” or “net dividend” means the distribution exclusive of any such tax credit,

and in this subsection “distribution” has the same meaning as in the Corporation Tax Acts.

• (2)
• (a) In this section and in Schedule 22—

“company” includes any body corporate, but does not include a company not resident in the State;

“control”, in relation to a body corporate, means the power of a person to secure—

• (i) by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate, or

• (ii) by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate,

that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person and, in relation to a partnership, means the right to a share of more than 50 per cent of the assets, or of more than 50 per cent of the income, of the partnership;

“person” includes any body of persons, and references to a person entitled to any exemption from tax include, in a case of an exemption expressed to apply to income of a trust or fund, references to the persons entitled to make claims for the granting of that exemption;

“share” includes stock other than debenture or loan stock;

“shares of a class to which this section applies” means shares of any class forming part of a company's share capital, other than a class of fully-paid preference shares carrying only a right to dividends at a rate per cent of the nominal value of the shares which is fixed and which in the opinion of the Appeal Commissioners does not substantially exceed the yield generally obtainable on preference shares the prices of which are quoted on stock exchanges in the State.

• (b) For the purposes of this section and Schedule 22—

• (i) shares shall be regarded as of different classes if the rights and obligations respectively attached to them are distinguishable as regards the payment of dividends or the amount paid up or in any other respect;

• (ii) any reference to shares acquired in right of other shares includes a reference to shares acquired in pursuance of an offer or invitation which was restricted to holders of those other shares;

• (iii) 2 trades shall be regarded as under the same control if they are carried on by persons one of whom is a body of persons over whom the other has control or both of whom are bodies of persons under the control of a third person, and several trades shall be regarded as under the same control if each is under the same control as all of the others, and in this subparagraph “body of persons” includes a partnership.

• (3) Where a person engaged in carrying on a trade which consists of or comprises dealings in shares or other investments becomes entitled to receive a dividend on a holding of shares of a class to which this section applies, being shares sold or issued to that person or otherwise acquired by that person not more than 10 years before the date on which the dividend becomes payable, and the dividend is to any extent paid out of profits accumulated before the date on which the shares were so acquired, then, if those shares, or those shares together with—

• (a) any other shares the dividend on which is payable to that person and which were sold or issued to that person or otherwise acquired by that person not more than 10 years before the date on which the dividend becomes payable,

• (b) in a case where the trade is under the same control as another trade which consists of or comprises dealings in shares or other investments, any shares the dividend on which is payable to the person engaged in carrying on that other trade and which were sold or issued to that person or otherwise acquired by that person not more than 10 years before the date on which the dividend becomes payable, and

• (c) any shares to be taken into account under subsection (5),

amount to 10 per cent or more of the issued shares of that class, the net amount of the dividend received on the shares in the holding shall, to the extent to which it was paid out of profits accumulated before the shares were acquired, be taken into account in computing for the purposes of the Tax Acts the profits or gains or losses of the trade as if it were a trading receipt which had not borne tax.

• (4) Where a person entitled under the Tax Acts to an exemption from tax which extends to dividends on shares becomes entitled to receive a dividend on a holding of shares of a class to which this section applies, being shares sold or issued to that person or otherwise acquired by that person not more than 10 years before the date on which the dividend becomes payable, and the dividend is to any extent paid out of the profits accumulated before the date on which the shares were so acquired, then, if those shares, or those shares together with—

• (a) any other shares the dividend on which is payable to that person and which were sold or issued to that person or otherwise acquired by that person not more than 10 years before the date on which the dividend becomes payable, and

• (b) any shares to be taken into account under subsection (5),

amount to 10 per cent or more of the issued shares of that class, the exemption shall, to an extent proportionate to the extent to which the dividend is paid out of profits accumulated before the date on which the shares were acquired, not apply to the dividend; but, if any annual payment is payable by that person out of the dividend, that annual payment shall be deemed as to the whole of that payment—

• (i) to be paid out of profits or gains not brought into charge to tax and section 238 shall apply accordingly, and

• (ii) for the purposes of corporation tax, not to be a payment which is a charge on income.

• (5) Where 2 or more persons, being persons engaged in carrying on trades of the kind mentioned in subsection (3) or entitled to an exemption of the kind mentioned in subsection (4), have each acquired shares in a company and the transactions in pursuance of which the acquisition was made were either transactions entered into by those persons acting in concert or transactions together comprised in any arrangements made by any person, then, in the application of either of those subsections in relation to a dividend payable to one of those persons on shares which include shares so acquired (or shares acquired in right of those shares), there shall be taken into account under subsection (3) (c) or, as the case may be, subsection (4) (b) any shares the dividend on which is payable to any other of those persons, being shares so acquired by that other person (or shares acquired in right of those shares).

• (6) Where any shares have been sold or otherwise disposed of by a person who held shares of that kind acquired at different times, it shall be assumed for the purposes of this section that shares which have been held for a longer time have been disposed of before shares which have been held for a shorter time.

• (7) Where, at the time when a trade is or is deemed to be set up and commenced, any shares form part of the trading stock belonging to the trade, those shares shall be regarded for the purposes of this section as having been acquired at that time by the person then engaged in carrying on the trade, and, subject to this subsection, where there is a change in the persons engaged in carrying on a trade which is not a change on which the trade is deemed to be discontinued, this section shall apply in relation to the person so engaged after the change as if anything done to or by that person's predecessor had been done to or by that person.

• (8) Schedule 22 shall apply for the purpose of ascertaining whether a dividend is to be regarded as paid to any extent out of profits accumulated before a particular date.

753 Restriction on relief for losses by repayment of tax in case of dividends paid out of accumulated profits. [ITA67 s372; CTA76 s140(1) and Sch2 Pt1 par21(1)]

753.—Where a person or a body of persons carries on a trade, other than such a trade mentioned in section 752(3), and the person's or the body of persons' income for any year of assessment or, as the case may be, accounting period includes a dividend the net amount of which would, if the trade were such a trade mentioned in section 752(3), be required to any extent to be taken into account as a trading receipt which has not borne tax, then, in ascertaining—

• (a) for the purposes of income tax, whether any or what repayment of tax is to be made to that person or body of persons under section 381 by reference to any loss sustained in the trade for that year of assessment, there shall be disregarded—

• (i) the gross amount corresponding to so much of that net amount as would have been required to be taken into account as a trading receipt which has not borne tax, and

• (ii) any tax credit in respect of the amount required to be disregarded under subparagraph (i);

• (b) for the purposes of corporation tax, the income or profits against which the loss may be set off under section 157 or 396, there shall be disregarded the gross amount corresponding to so much of that net amount as would have been required to be taken into account as a trading receipt which has not borne tax.

PART 29 Patents, Scientific and Certain Other Research, Know-How and Certain Training

CHAPTER 1 Patents

754 Interpretation (Chapter 1). [ITA67 s284; CTA76 s21(1) and Sch1 par35; FA97 s146(1) and Sch9 PtI par1(19)]

754.—(1) In this Chapter—

“the commencement of the patent”, in relation to a patent, means the date from which the patent rights become effective;

“income from patents” means—

• (a) any royalty or other sum paid in respect of the user of a patent, and

• (b) any amount on which tax is payable for any chargeable period by virtue of this Chapter;

“Irish patent” means a patent granted under the laws of the State;

“patent rights” means the right to do or to authorise the doing of anything which but for that right would be an infringement of a patent;

“the writing-down period” has the meaning assigned to it by section 755(2).

• (2) In this Chapter, any reference to the sale of part of patent rights includes a reference to the grant of a licence in respect of the patent in question, and any reference to the purchase of patent rights includes a reference to the acquisition of a licence in respect of a patent; but, if a licence granted by a person entitled to any patent rights is a licence to exercise those rights to the exclusion of the grantor and all other persons for the whole of the remainder of the term for which the rights subsist, the grantor shall be treated for the purposes of this Chapter as thereby selling the whole of the rights.

• (3) Where, under section 77 of the Patents Act, 1992, or any corresponding provisions of the law of any country outside the State, an invention which is the subject of a patent is made, used, exercised or vended by or for the service of the State or the government of the country concerned, this Chapter shall apply as if the making, user, exercise or vending of the invention had taken place in pursuance of a licence, and any sums paid in respect thereof shall be treated accordingly.

755 Annual allowances for capital expenditure on purchase of patent rights. [ITA67 s285; CTA76 s21(1) and Sch1 par36]

755.—(1) Where a person incurs capital expenditure on the purchase of patent rights, there shall, subject to and in accordance with this Chapter, be made to that person writing-down allowances in respect of that expenditure during the writing-down period; but no writing-down allowance shall be made to a person in respect of any expenditure unless—

• (a) the allowance is to be made to the person in taxing the person's trade, or

• (b) any income receivable by the person in respect of the rights would be liable to tax.

• (2)
• (a) Subject to paragraphs (b) to (d), the writing-down period shall be the 17 years beginning with the chargeable period related to the expenditure.

• (b) Where the patent rights are purchased for a specified period, paragraph (a) shall apply with the substitution for the reference to 17 years of a reference to 17 years or the number of years comprised within that period, whichever is the less.

• (c) Where the patent rights purchased begin one complete year or more after the commencement of the patent and paragraph (b) does not apply, paragraph (a) shall apply with the substitution for the reference to 17 years of a reference to 17 years less the number of complete years which, when the rights begin, have elapsed since the commencement of the patent or, if 17 complete years have so elapsed, of a reference to one year.

• (d) For the purposes of this subsection, any expenditure incurred for the purposes of a trade by a person about to carry on the trade shall be treated as if that expenditure had been incurred by that person on the first day on which that person carries on the trade unless before that first day that person has sold all the patent rights on the purchase of which the expenditure was incurred.

756 Effect of lapse of patent rights. [ITA67 s286; CTA76 s21(1) and Sch1 par37]

756.—(1) Where a person incurs capital expenditure on the purchase of patent rights and, before the end of the writing-down period, any of the following events occurs—

• (a) the rights come to an end without being subsequently revived;

• (b) the person sells all those rights or so much of those rights as the person still owns;

• (c) the person sells part of those rights and the net proceeds of the sale (in so far as they consist of capital sums) are not less than the amount of the capital expenditure remaining unallowed;

no writing-down allowance shall be made to that person for the chargeable period related to the event or for any subsequent chargeable period.

• (2) Where a person incurs capital expenditure on the purchase of patent rights and, before the end of the writing-down period, either of the following events occurs—

• (a) the rights come to an end without being subsequently revived;

• (b) the person sells all those rights or so much of those rights as the person still owns, and the net proceeds of the sale (in so far as they consist of capital sums) are less than the amount of the capital expenditure remaining unallowed;

there shall, subject to and in accordance with this Chapter, be made to that person for the chargeable period related to the event an allowance (in this Chapter referred to as a “balancing allowance”) equal to—

• (i) if the event is the rights coming to an end, the amount of the capital expenditure remaining unallowed, and

• (ii) if the event is a sale, the amount of the capital expenditure remaining unallowed less the net proceeds of the sale.

• (3) Where a person who has incurred capital expenditure on the purchase of patent rights sells all or any part of those rights and the net proceeds of the sale (in so far as they consist of capital sums) exceed the amount of the capital expenditure remaining unallowed, if any, there shall, subject to and in accordance with this Chapter, be made on that person for the chargeable period related to the sale a charge (in this Chapter referred to as a “balancing charge”) on an amount equal to—

• (a) the excess, or

• (b) where the amount of the capital expenditure remaining unallowed is nil, the net proceeds of the sale.

• (4) Where a person who has incurred capital expenditure on the purchase of patent rights sells a part of those rights and subsection (3) does not apply, the amount of any writing-down allowance made in respect of that expenditure for the chargeable period related to the sale or any subsequent chargeable period shall be the amount determined by—

• (a) subtracting the net proceeds of the sale (in so far as they consist of capital sums) from the amount of the expenditure remaining unallowed at the time of the sale, and

• (b) dividing the result by the number of complete years of the writing-down period which remained at the beginning of the chargeable period related to the sale,

and so on for any subsequent sales.

• (5) References in this section to the amount of any capital expenditure remaining unallowed shall in relation to any event be construed as references to the amount of that expenditure less any writing-down allowances made in respect of that expenditure for chargeable periods before the chargeable period related to that event, and less also the net proceeds of any previous sale by the person who incurred the expenditure of any part of the rights acquired by the expenditure, in so far as those proceeds consist of capital sums.

• (6) Notwithstanding subsections (1) to (5)—

• (a) no balancing allowance shall be made in respect of any expenditure unless a writing-down allowance has been, or, but for the happening of the event giving rise to the balancing allowance, could have been, made in respect of that expenditure, and

• (b) the total amount on which a balancing charge is made in respect of any expenditure shall not exceed the total writing-down allowances actually made in respect of that expenditure less, if a balancing charge has previously been made in respect of that expenditure, the amount on which that charge was made.

757 Charges on capital sums received for sale of patent rights. [ITA67 s288; CTA76 s21(1) and Sch1 par38]

757.—(1) (a) Subject to paragraphs (b) and (c), where a person resident in the State sells any patent rights and the net proceeds of the sale consist wholly or partly of a capital sum, that person shall, subject to this Chapter, be charged to tax under Case IV of Schedule D for the chargeable period in which the sum is received by that person and for successive chargeable periods, being charged in each period on the same fraction of the sum as the period is of 6 years (or such less fraction as has not already been charged).

• (b) Where the person by notice in writing served on the inspector not later than 12 months after the end of the chargeable period in which the capital sum was received elects that the whole of that sum shall be charged to tax for the chargeable period in which the sum is received, it shall be charged to tax accordingly.

• (c) Where the person by notice in writing served on the inspector not later than 12 months after the end of the chargeable period in which the capital sum was received applies to have the fraction referred to in paragraph (a) determined as being other than the same fraction as the chargeable period is of 6 years, then, if it appears to the Revenue Commissioners that hardship is likely to arise having regard to all the circumstances of the case unless a direction is given under this paragraph, they may direct that the fraction shall be the same fraction of the sum as the chargeable period is of a number of years other than 6 years, and that the charge shall be spread accordingly.

• (2)
• (a) Where a person not resident in the State sells any patent rights and the net proceeds of the sale consist wholly or partly of a capital sum, and the patent is an Irish patent, then, subject to this Chapter—

• (i) the person shall be chargeable to tax in respect of that sum under Case IV of Schedule D, and

• (ii) section 238 shall apply to that sum as if it were an annual payment payable otherwise than out of profits or gains brought into charge to tax.

• (b) Where, not later than 12 months after the end of the year of assessment in which the sum referred to in paragraph (a) is paid, the person to whom it is paid, by notice in writing to the Revenue Commissioners, elects that the sum shall be treated for the purpose of income tax for that year and for each of the 5 succeeding years as if one-sixth of that sum were included in that person's income chargeable to tax for all those years respectively, it shall be so treated, and all such repayments and assessments of tax for each of those years shall be made as are necessary to give effect to the election; but—

• (i) the election shall not affect the amount of tax to be deducted and accounted for under section 238,

• (ii) where any sum is deducted under section 238, any adjustments necessary to give effect to the election shall be made by means of repayment of tax, and

• (iii) those adjustments shall be made year by year and as if one-sixth of the sum deducted had been deducted in respect of tax for each year, and no repayment of or of any part of that portion of the tax deducted which is to be treated as deducted in respect of tax for any year shall be made unless and until it is ascertained that the tax ultimately to be paid for that year is less than the amount of tax paid for that year.

• (3)
• (a) In subsection (2), “tax” shall mean income tax, unless the seller of the patent rights, being a company, would be within the charge to corporation tax in respect of any proceeds of the sale not consisting of a capital sum.

• (b) Where paragraph (a) of subsection (2) applies to charge a company to corporation tax in respect of a sum paid to it, paragraph (b) of that subsection shall not apply; but—

• (i) the company may, by notice in writing given to the Revenue Commissioners not later than 12 months after the end of the accounting period in which the sum is paid, elect that the sum shall be treated as arising rateably in the accounting periods ending not later than 6 years from the beginning of the accounting period in which the sum is paid (being accounting periods during which the company remains within the charge to corporation tax by virtue of subsection (2) (a)), and

• (ii) there shall be made all such repayments of tax and assessments to tax as are necessary to give effect to any such election.

• (4) Where the patent rights sold by a person, or the rights out of which the patent rights sold by a person were granted, were acquired by the person by purchase and the price paid consisted wholly or partly of a capital sum, subsections (1) to (3) shall apply as if any capital sum received by the person on the sale of the rights were reduced by the amount of that sum; but—

• (a) where between the purchase and the sale the person has sold part of the patent rights acquired by the person and the net proceeds of that sale consist wholly or partly of a capital sum, the amount of the reduction to be made under this subsection in respect of the subsequent sale shall itself be reduced by the amount of that sum, and

• (b) nothing in this subsection shall affect the amount of tax to be deducted and accounted for under section 238 by virtue of subsection (2) and, where any sum is deducted under section 238, any adjustment necessary to give effect to this subsection shall be made by means of repayment of tax.

• (5) This section shall apply in relation to any sale of part of any patent rights as it applies in relation to sales of patent rights.

758 Relief for expenses. [ITA67 s290(1) to (3); CTA76 s21(1) and Sch1 par39]

758.—(1) Notwithstanding section 81, in computing the profits or gains of any trade, there shall be allowed to be deducted as expenses any fees paid or expenses incurred in obtaining for the purposes of the trade the grant of a patent or an extension of the term of a patent.

• (2) Where—

• (a) a person, otherwise than for the purposes of a trade carried on by the person, pays any fees or incurs any expenses in connection with the grant or maintenance of a patent or the obtaining of an extension of a term of a patent, and

• (b) those fees or expenses would, if they had been paid or incurred for the purposes of a trade, have been allowable as a deduction in estimating the profits or gains of the trade,

there shall be made to the person for the chargeable period in which those fees or expenses were paid or incurred an allowance equal to the amount of those fees or expenses.

• (3) Where a patent is granted in respect of any invention, an allowance equal to so much of the net amount of any expenses incurred by an individual who, whether alone or in conjunction with any other person, actually devised the invention as is properly ascribable to the devising of that invention (not being expenses in respect of which, or of assets representing which, an allowance is to be made under any other provision of the Tax Acts) shall be made to that individual for the year of assessment in which the expenses were incurred.

759 Spreading of revenue payments over several years. [ITA67 s195B(3) and (6) and s291; CTA76 s21(1) and Sch1 par40; FA93 s10(1)]

759.—(1) In this section, any reference to the tax payable by a person includes, in cases where the income of an individual's spouse is deemed to be the income of the individual, references to the income tax payable by the individual's spouse.

• (2) Where a royalty or other sum to which section 237 or 238 applies is paid in respect of the user of a patent and that user extended over a period of 6 complete years or more, the person receiving the payment may require that the tax payable by that person by reason of the receipt of that sum shall be reduced so as not to exceed the total amount of tax which would have been payable by that person if that royalty or sum had been paid in 6 equal instalments at yearly intervals, the last of which was paid on the date on which the payment was in fact made.

• (3) Subsection (2) shall apply in relation to a royalty or other sum where the period of the user is 2 complete years or more but less than 6 complete years as it applies to the royalties and sums mentioned in that subsection, but with the substitution for the reference to 6 equal instalments of a reference to so many equal instalments as there are complete years comprised in that period.

• (4) Nothing in this section shall apply to any sum to which section 238 applies by virtue of section 757.

760 Capital sums: effect of death, winding up and partnership changes. [ITA67 s195B(3) and (6) and s293; CTA76 s21(1) and Sch1 par42; FA93 s10(1)]

760.—(1) In this section, any references to tax paid or borne or payable or to be paid or borne by a person include, in cases where the income of an individual's spouse is deemed to be income of the individual, references to the income tax paid or borne, or payable or to be paid or borne, by the individual's spouse.

• (2) Where a person on whom, by reason of the receipt of a capital sum, a charge is to be, or would otherwise be, made under section 757 dies or, being a body corporate, commences to be wound up—

• (a) no sums shall be charged under that section on that person for any chargeable period subsequent to that in which the death takes place or the winding up commences, and

• (b) the amount to be charged for the chargeable period in which the death occurs or the winding up commences shall be increased by the total amounts which but for the death or winding up would have been charged for subsequent chargeable periods.

• (3)
• (a) In the case of a death, the personal representatives may, by notice in writing served on the inspector not later than 21 days after notice has been served on them of the charge to be made by virtue of this section, require that the tax payable out of the estate of the deceased by reason of the increase provided for by this section shall be reduced so as not to exceed the amount determined in accordance with paragraph (b).

• (b) The amount referred to in paragraph (a) shall be the total amount of tax which would have been payable by the deceased or out of his or her estate by reason of the operation of section 757 in relation to the capital sum if, instead of the amount to be charged for the year in which the death occurs being increased by the whole amount of the sums charged for subsequent years, the several amounts to be charged for the years beginning with that in which the capital sum was received and ending with that in which the death occurred had each been increased by that whole amount divided by the number of those years.

• (4)
• (a) In this subsection, “the relevant period” has the same meaning as in Part 43.

• (b) Where, under Chapter 4 of Part 9 as modified by Part 43, charges under section 757 are to be made on 2 or more persons as being the persons for the time being carrying on a trade, and the relevant period comes to an end, subsection (2) shall apply in relation to the ending of the relevant period as it applies where a body corporate commences to be wound up.

• (c) Where paragraph (b) applies—

• (i) the additional sums which under subsection (2) are to be charged for the year in which the relevant period ends shall be aggregated and apportioned among the members of the partnership immediately before the ending of the relevant period according to their respective interests in the partnership profits at that time and each partner (or, if that partner is dead, his or her personal representatives) charged for his or her proportion, and

• (ii) each partner (or, if that partner is dead, his or her personal representatives) shall have the same right to require a reduction of the total tax payable by him or her or out of his or her estate by reason of the increase provided for by this section as would have been exercisable by the personal representatives under subsection (3) in the case of a death, and that subsection shall apply accordingly but as if the reference to the amount of tax which would have been payable by the deceased or out of his or her estate in the event mentioned in that subsection were a reference to the amount of tax which would in that event have been paid or borne by the partner in question or out of his or her estate.

761 Manner of making allowances and charges. [ITA67 s292; CTA76 s21(1) and Sch1 par41]

761.—(1) An allowance or charge under this Chapter shall be made to or on a person in taxing the person's trade if—

• (a) the person is carrying on a trade the profits or gains of which are, or, if there were any, would be, chargeable to tax under Case I of Schedule D for the chargeable period for which the allowance or charge is made, and

• (b) at any time in the chargeable period or its basis period the patent rights in question, or other rights out of which they were granted, were or were to be used for the purposes of that trade;

but nothing in this subsection shall affect the preceding provisions of this Chapter allowing a deduction as expenses in computing the profits or gains of a trade or requiring a charge to be made under Case IV of Schedule D.

• (2) Except where provided for in subsection (1), an allowance under this Chapter shall be made by means of discharge or repayment of tax and shall be available against income from patents, and a charge under this Chapter shall be made under Case IV of Schedule D.

762 Application of Chapter 4 of Part 9. [ITA67 s299(4) (b) (iii) and s303(1); CTA76 s21(1) and Sch1 par46 and par49]

762.—(1) Subject to subsection (2), Chapter 4 of Part 9 shall apply as if this Chapter were contained in that Part, and any reference in the Tax Acts to any capital allowance to be given by means of discharge or repayment of tax and to be available or available primarily against a specified class of income shall include a reference to any capital allowance given in accordance with section 761 (2).