Special Committee Corporation Tax Bill, 1975 debate -
Tuesday, 2 Mar 1976

SECTION 120.

Question proposed: " That section 120 stand part of the Bill."

Mr. R. Ryan

This section is designed to prevent an abuse of group relief where, for example, because a parent company cannot, by reason of insufficiency of profits, benefit from capital allowances or losses of a subsidiary, it transfers the subsidiary to another group in a position to benefit by way of group relief from the subsidiary's losses etc. When the subsidiary's losses etc. have been stripped it reverts to the original group. The effect of the section is that where any arrangements are made by which a company may be detached from one group relationship and joined to another group or where it may be controlled from outside the group the company is to be treated as having terminated the group relationship. The same approach with certain necessary modifications is applied to consortia.

In other words, you simply just cannot transfer it out of the first group into the second group in order to transfer to the second group losses which cannot be absorbed in the first one, and then transfer it back again if it suits your book to do it.

Chairman

I think you used the word " controlled " there by somebody outside the consortium?

Mr. R. Ryan

Yes. The effect of the section is that if there are any arrangements by which a company may be detached from one group relationship and joined to another group or where it may be controlled from outside the group the company is to be treated as having terminated the group relationship. In other words, it cannot be controlled by two people at the one time. But it cannot be in one group and controlled from outside.

Chairman

Even though, say, the shareholding and that sort of thing is correct within a group if it happens to be controlled by some contract or something outside—that could, I suppose, happen—is that what you are saying? This is a new conception now. I just want to be clear on what this means.

Mr. R. Ryan

The control you will recall, Chairman, is defined in the Act——

Chairman

In that sense control is being used? That is clear.

Mr. R. Ryan

Yes.

Chairman

That answers it.

Major de Valera

What is the point of this section. It is a very long and cumbersome one. Is it necessary in other words?

Mr. R. Ryan

I think it is; otherwise, arrangements would undoubtedly be fabricated so that if a group was not able, because of insufficiency of profits, to absorb the benefit of losses within that group it might transfer the " benefit " of those losses to some other group, perhaps in exchange for a consideration or for a variety of reasons. That, of course, would defeat the whole object of the gift which has been made in this case, which was to allow genuine trading relationships to benefit within a genuine group but not to be something that could be sold on the market place. If we did that, we would get back the situation which we closed off in the 1974 Finance Act where we stopped this practice of buying companies with losses in order to set them off against profitable companies.

Question put and agreed to.

SECTION 121.

Question proposed: " That section 121 stand part of the Bill."

Mr. R. Ryan

This section is designed to prevent the possible abuse of capital allowances in respect of machinery and plant purchased and then leased. The example illustrates what we have in mind. The allowances with which the section is concerned are the accelerated capital allowances and investment allowances. If the example is studied it will probably be the best way of comprehending it.

Major de Valera

This is simply another provision to forestall an obvious device.

Mr. R. Ryan

Yes, that is right. The devices become more obvious when they are closed off in the legislation of other countries and if we did not close them off here people would read the legislation of other countries.

Question put and agreed to.