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

SECTION 107.

Question proposed: "That section 107 stand part of the Bill."

Mr. R. Ryan

This section sets out the general nature of group relief and the conditions under which it will be available for trading losses and other amounts, such as management expenses and charges on income, which could otherwise be carried forward for set off in subsequent accounting periods. The loss surrendered by the company sustaining it and allowed to any other company or companies with which they are associated, either as members of the same group—subsection (1)—or as being concerned in a consortium of companies—subsection (2)—to companies or members of the same group, if one is a subsidiary of the other, or both are subsidiaries of a third company, the parent subsidiary relationship being determined according to the test of not less than 75 per cent ownership of the ordinary share capital. Group relief within a consortium will be available where the surrendering company is a trading company which is owned by a consortium and which is not a 75 per cent subsidiary of any company and the claimant company is a member of the consortium.

Similar relief will be available where a holding company which owns 90 per cent of the ordinary share capital of the surrendering trading company is interposed between the latter company and the members of the consortium. A company owned by a consortium if all of the ordinary share capital of the company is owned directly and beneficially by five or fewer companies. Two or more claimant companies are permitted to share in the surrendered group but not the consortium relief in any proportion desired and in the case of a group, including consortium, any deficiency or subvention payment in respect of a loss, and so on, made by the claimant company to the surrendering company is to be ignored for corporation tax purposes. This is a relief which is generally welcomed.

Mr. T. J. Fitzpatrick

(Dublin Central): Is this something new?

Mr. R. Ryan

Yes. The group relief did not previously exist.

Mr. O'Malley

Does it apply only in the one year or can losses from one company be carried forward to a subsequent year against the profits of another company in the consortium?

Mr. R. Ryan

It is necessary that the companies have corresponding accounting periods to enjoy this group relief. If the loss has not been fully used or set off then it can be carried forward again subject to the rule that companies must have common accounting periods.

Mr. O'Malley

Can it be split up between the other member companies in the consortium in such a way as to maximise the advantage to them?

Mr. R. Ryan

There are no restrictions as long as the conditions of the accounting period are common. The manner in which it is applied to different companies is a matter for the group. This does not apply to a consortium.

Mr. O'Malley

Would the inspector of taxes disallow a setoff which would have the effect of, say, bringing the profits of all the other companies below £5,000 or something of that kind even though one individual company might have made a substantial loss?

Mr. R. Ryan

The accounts of each individual company will be looked at to ascertain whether or not their profits are what they are. You would not reduce the profits of company A, or B or C by setting off the losses of company X within that group. So, whether or not they are a small company or otherwise you look at the accounts of that company. It is only for tax purposes that the setoff becomes available.

Mr. T. J. Fitzpatrick

(Dublin Central): Does the Minister automatically deduct part of the profits from whatever company is making them and offset it against the other?

Mr. R. Ryan

That would be the effect of it.

Mr. E. Collins

What is the position about accumulated losses forward up to the date of the enactment of this Bill?

Mr. R. Ryan

At present, since the publication of the second White Paper the Revenue Commissioners have been dealing with this matter administratively in the way we are now providing for it in the legislation. Any companies that sought group relief have been given this facility particularly because our intention originally was to have this legislation effective from April, 1975. Because of the complexity of the law and the preparation of the Bill it was not possible to operate this statutorily but I publicly said that the Revenue Commissioners would operate this administratively and that is what they have been doing.

Mr. E. Collins

What is the position for 1975?

Mr. R. Ryan

The Revenue Commissioners have always been generous and go back as far as necessary in order to give adequate relief.

Mr. E. Collins

What is the position about a company with accumulated losses forward which are being purchased by a group? Would they then be allowed to offset the accumulated losses forward?

Mr. R. Ryan

You only use losses when the losses are incurred by a company which is a member of a group. Losses which are generated by a company which is not a member of the group at the time they made them would not be set off within the group for very obvious reasons.

Mr. T. J. Fitzpatrick

(Dublin Central): The parent company must have 75 per cent of the subsidiary before they can qualify. How did the Minister arrive at that figure? Is there a particular reason for having such a figure?

Mr. R. Ryan

Yes. Clearly, it is necessary that there would be a very high relationship between companies which will enjoy this relief. Remember once the losses of one company are transferred to another the company which had them is no longer able to use them against their own possible future profits. There has to be a substantial identity of interest between the proprietors of any two or more companies enjoying this. That is why it was felt we had to go for a substantial common interest like 75 per cent. One could argue that it should be 100 per cent if one were protecting the interests of the people who were surrendering the loss but, obviously, there could be various situations where companies are closely within a group but they have not common participators but where they have 75 per cent common interest which gives them election for the relief available. It is not necessary for a company to use the full amount of losses which might be available.

Mr. T. J. Fitzpatrick

(Dublin Central): It is not necessary to use the full amount of losses?

Mr. R. Ryan

No, it is not necessary. If the balance is not used by some other company in the group, this would be carried forward.

Mr. T. J. Fitzpatrick

(Dublin Central): To the following year?

Mr. R. Ryan

Yes.

Mr. Haughey

Is there any conflict here between these provisions and the Shannon provisions which we were dealing with earlier today? The Bill is anxious to see that losses are not transferred from a company inside Shannon to a company outside Shannon by means of book-keeping transactions. We presume that the two separate situations have been adverted to.

Mr. R. Ryan

If we remember that a Shannon company is not liable to tax, it will be seen that it cannot claim the right to set off losses.

Mr. Haughey

The idea was a resident company outside Shannon would transfer its profits into the Shannon company to avoid payment. That is what we were seeking to deal with earlier on.

Mr. R. Ryan

Yes.

Mr. Haughey

That does not run counter to these provisions?

Mr. R. Ryan

No.

Mr. Haughey

These provisions cannot be used to get around those?

Mr. R. Ryan

No. All we are doing here is providing relief in respect of losses.

Mr. Haughey

It seemed to me that it might be possible for these provisions to be used to transfer——

Mr. R. Ryan

A loss on a company outside?

Mr. Haughey

No, profits of a company.

Mr. R. Ryan

I will have a look at it.

Question put and agreed.