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Special Committee Corporation Tax Bill, 1975 debate -
Wednesday, 25 Feb 1976

SECTION 99.

I move amendment No. 30d:

In page 93, subsection (1), line 32, after " income tax " to insert "by virtue of section 434 of the Income Tax Act, 1967".

This is an amendment of a technical nature which will ensure that the assessment required by the terms of the section will be made under Case IV, Schedule D. Section 4, of the Finance Act, 1974, provides that income from which tax is deductible by virtue of section 434 of the Income Tax Act, 1967, is assessable under Case IV of Schedule D.

Amendment agreed to.
Question proposed: "That section 99, as amended, stand part of the Bill."

This section provides that where a company which has been assessed to income tax under section 98 releases or writes off the whole or part of the debt created by the loan or advance, the person benefiting by that release would be regarded as having received at the time of the release income of an amount which after deduction of income tax at the standard rate is equal to the amount written off or released. For example, if the amount of the debt written off is £6,500 and the standard rate is 35 per cent, the amount to be treated as income of the person who benefits will be £6,500×(100÷(100-35))=£10,000.

Is this a debt owed to the company or by the company?

It is a loan which is owed to the company and the company then writes off the loan.

Has the company paid the gross income tax on this? Is this one of those cases where the company makes a loan to a shareholder and the company pays the income tax and now releases it. Normally when a loan has been repaid the Revenue would refund the tax. Is that right?

Now, the company releases the debt so that you do not owe it any more? The shareholder is now treated as being liable for that amount?

Yes. He gets the benefit of it.

What happens then? The company has paid tax on it. Are they both paying tax on it? The company has already paid tax?

I have circulated an example. The example makes it clear that the participator is not entitled to repayment of the income tax which is deemed to have been deducted. His liability to tax in respect of the loan will be confined to tax at the higher rates to which he may be liable.

This is a person who is a member of the company, what you call a participator?

He has got a loan. The Revenue people decided when he was getting the loan that this was in fact a distribution and the company has to pay tax. Is that the situation? If the loan is repaid the Revenue will refund the tax to the company. Now the loan is not repaid, it is written off. The taxpayer will now pay tax on this benefit he has got. Will the company still be at the loss of the tax it has paid on it? Perhaps it would be as well if I said that my understanding of section 99 now is that the taxpayer or individual shareholder, to whom the loan was released or written off, will be taxable on the full gross amount but will be given credit for the tax already paid by the company when the loan was made.

That is correct.

Question put and agreed to.
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