Section 29 deals with distributions made by a company carrying on mutual business or not carrying on any business. It provides that distributions made by such a company are not to carry tax credits except to the extent that the distributions are made out of profits charged to corporation tax or out of franked investment income. The section ensures that a tax credit will not be given in respect of a distribution made out of a surplus arising from mutual trading as such a surplus will not attract liability to corporation tax. However, other income of a company carrying on a mutual trade, for example, bank interest or investment income, will be liable to corporation tax and, accordingly, a tax credit will attach to distributions out of such income.
SECTION 29.
In subsection (1) there is reference to " or other mutual business". "Mutual trading" is clear, and " mutual insurance" is clear, but what is taken in " or other mutual business"? For instance, supposing one company has an investment in another and otherwise they are not related. We will take two resident companies where one has substantial shares in the bank. It is not uncommon for a company here to buy shares. That is an investment. The company that holds the bank shares will receive dividends from the bank. It is merely an investment. Is there mutual business there? I just want to be clear on this. I can see the point being raised that in the course of business company A has taken shares in company B and company B, in relationship to company A, is the same in relation to all shareholders and pays the dividend to company A. But on the other hand, company A has invested in company B's shares as a matter of business and the shares are very definitely company B's business. By any stretch of imagination could such a transaction be captured by the words " mutual business " and the section applied in some way? I know it is an out-of-the-way point.
I understand there is no definition of " mutual business " so it is a matter for determination on the facts in each particular case. I have an example here which has not yet been circulated as we had not anticipated the expedition with which we moved today. Let us take the example where the surplus from mutual trading pertaining to an organisation was £1,000: investment income on which corporation tax liability arises, £500; corporation tax on that £500 would be £200; distributions received from Irish resident companies, £650; and relevant tax credit would be £350. The company could disburse to its members the total of £1,000 plus £500, less corporation tax £200, plus £650, to make a total of £1,950. If a company makes a distribution of, say, £900 to its members, the proportion £1,000 over £1,950 of that amount derives from a non-liable source, that is the business carried on on a mutual basis. Accordingly, the proportion of the £900 which will carry tax credit is £900 multiplied by £900 over £1,950, or £439.
I hope Deputy de Valera understands all this because I can not.