Direct Tax Acts, Finance Act 2018

130 Matters to be treated as distributions
CTA76 s84; FA98 s43; FA99 s79; FA01 s85; FA02 s39(a); FA03 s61(1); FA04 s89 and Sch3; FA05 s18(1); FA07 s35 and Sch2; FA11 s29(b)

(1) The following provisions of this Chapter, together with [sections 436 [, 436A]2 and 437, and subsection (2)(b) of section 816]1, shall, subject to any express exceptions, apply with respect to the meaning in the Corporation Tax Acts of “distribution” and for determining the persons to whom certain distributions are to be treated as made; but references in the Corporation Tax Acts to distributions of a company shall not apply to distributions made in respect of share capital in a winding up.

(2) In relation to any company, “distribution” means –

(a) any dividend paid by the company, including a capital dividend;

(b) any other distribution out of assets of the company (whether in cash or otherwise) in respect of shares in the company, except, subject to section 132, so much of the distribution, if any, as represents a repayment of capital on the shares or is, when it is made, equal in amount or value to any new consideration received by the company for the distribution;

(c) any amount met out of assets of the company (whether in cash or otherwise) in respect of the redemption of any security issued by the company in respect of shares in, or securities of, the company otherwise than wholly for new consideration, or in the redemption of such part of any such security so issued as is not properly referable to new consideration;

(d) any interest or other distribution out of assets of the company in respect of securities of the company (except so much, if any, of any such distribution as represents the principal thereby secured, and, without prejudice to section 135(9), for this purpose no amount shall be regarded as representing the principal secured by a security in so far as it exceeds any new consideration received by the company for the issue of the security), where the securities are –

(i) securities issued as mentioned in paragraph (c), but excluding securities issued before the 27th day of November, 1975,

(ii) securities convertible directly or indirectly into shares in the company or securities carrying any right to receive shares in or securities of the company, not being (in either case) securities quoted on a recognised stock exchange nor issued on terms which are reasonably comparable with the terms of issue of securities so quoted,

(iii) securities under which –

(I) the consideration given by the company for the use of the principal secured is to any extent dependent on the results of the company’s business or any part of the company’s business, or

(II) the consideration so given represents more than a reasonable commercial return for the use of that principal; but this shall not operate so as to treat as a distribution so much of the interest or other distribution as represents a reasonable commercial return for the use of that principal,

(iv) securities issued by the company and held by a company not resident in the State, where –

(I) the company which issued the securities is a 75 per cent subsidiary of the other company,

(II) both companies are 75 per cent subsidiaries of a third company which is not resident in the State, or

(III) except where 90 per cent or more of the share capital of the company which issued the securities is directly owned by a company resident in the State, both the company which issued the securities and the company not resident in the State are 75 per cent subsidiaries of a third company which is resident in the State,

or

(v) securities connected with shares in the company, where “connected with” means that, in consequence of the nature of the rights attaching to the securities or shares, and in particular of any terms or conditions attaching to the right to transfer the shares or securities, it is necessary or advantageous for a person who has, or disposes of or acquires, any of the securities also to have, or to dispose of or acquire, a proportionate holding of the shares;

(e) any amount required to be treated as a distribution by subsection (3) or by [section 131;]3

[(f) any qualifying amount (within the meaning of subsection (2C)) paid to an individual who at the time that amount is paid—

(i) is a beneficiary under the terms of a trust deed of an employee share ownership trust approved of by the Revenue Commissioners under Schedule 12 and for which approval has not been withdrawn and which trust deed contains provision for the transfer of securities to the trustees of a scheme approved of by the Revenue Commissioners under Schedule 11 and for which approval has not been withdrawn, and

(ii) would be eligible to have securities appropriated to him or her, had such securities been available for appropriation, under the scheme referred to in subparagraph (i).]4

[(2A) For the purposes of subsection (2)(d)(iii)(I), the consideration given by the company for the use of the principal received shall not be treated as being to any extent dependent on the results of the company’s business or any part of the company’s business by reason only of the fact that the terms (however expressed) of the security provide—

(a) for the consideration to be reduced in the event of the results improving, or

(b) for the consideration to be increased in the event of the results deteriorating.]5

[(2B) Subsection (2)(d)(iv) shall not apply as respects interest, other than interest to which section 452 or 845A applies, paid to a company which is a resident of a Member State of the European Communities other than the State and, for the purposes of this subsection, a company is a resident of a Member State of the European Communities if the company is by virtue of the law of that Member State resident for the purposes of tax (being any tax imposed in the Member State which corresponds to corporation tax in the State) in such Member State.]6

[(2C) Notwithstanding section 519(6) and paragraph 13(4) of Schedule 12, “qualifying amount” means an amount paid solely out of income consisting of dividends received in a chargeable period (within the meaning of section 321) in respect of securities (within the meaning of Schedule 12) held by the trustees of the employee share ownership trust referred to in subsection (2)(f)(i), but only to the extent that such income exceeds the aggregate of—

(a) any sum or sums spent to meet expenses of the trust,

(b) any interest paid on sums borrowed by the trust,

(c) any sum or sums paid to the personal representatives of a deceased person who was a beneficiary under the terms of the trust deed,

(d) any amount spent on the repayment of sums borrowed including any amount capable of being so spent, having regard to the conditions referred to in paragraph 11(2B)(d) or 11A(5)(d) of Schedule 12, and

(e) any amount spent on the acquisition of securities (within the meaning of Schedule 12) including any amount capable, at any particular time, of being so spent on such securities at their market value (within the meaning of section 548) at that time,

in the chargeable period.]7

(3) (a) Where on a transfer of assets or liabilities by a company to its members or to a company by its members the amount or value of the benefit received by a member (taken according to its market value) exceeds the amount or value (so taken) of any new consideration given by the member, the company shall be treated as making a distribution to the member of an amount equal to the difference (in paragraph (b) referred to as “the relevant amount”).

(b) Notwithstanding paragraph (a), where the company and the member receiving the benefit are both resident in the State and either the former is a subsidiary of the latter or both are subsidiaries of a third company[, being a company which, by virtue of the law of a [relevant Member State]9 is resident for the purposes of tax in such a Member State]8, the relevant amount shall not be treated as a distribution.

[(c) For the purposes of this subsection and subsection (4), “tax”, in relation to a [relevant Member State]11 other than the State, means any tax imposed in the Member State which corresponds to corporation tax in the State.]10

[(d) For the purposes of this subsection and subsection (4)

EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by the Protocol signed at Brussels on 17 March 1993;

EEA State” means a state which is a contracting party to the EEA Agreement;

relevant Member State” means—

(i) a Member State of the European Communities, or

(ii) not being such a Member State, an EEA State which is a territory with the government of which arrangements having the force of law by virtue of [section 826(1)]13 have been made;]12

(4) The question whether one company is a subsidiary of another company for the purpose of subsection (3) shall be determined as a question whether it is a 51 per cent subsidiary of that other company, except that that other company shall be treated as not being the owner of –

(a) any share capital which it owns directly in a company, if a profit on a sale of the shares would be treated as a trading receipt of its trade,

(b) any share capital which it owns indirectly and which is owned directly by a company for which a profit on the sale of the shares would be a trading receipt, or

(c) any share capital which it owns directly or indirectly in a company [, not being a company which, by virtue of the law of a [relevant Member State]15 is resident for the purposes of tax in such a Member State]14.

(5) (a) No transfer of assets (other than cash) or of liabilities between one company and another company shall constitute, or be treated as giving rise to, a distribution by virtue of subsection (2)(b) or (3) if they are companies –

(i) both of which are resident in the State and neither of which is a 51 per cent subsidiary of a company not so resident, and

(ii) which neither at the time of the transfer nor as a result of it are under common control.

(b) For the purposes of this subsection, 2 companies shall be under common control if they are under the control of the same person or persons, and for this purpose “control” shall be construed in accordance with section 11.

(c) Any amount which would be a distribution by virtue of subsection (3) (a) shall not constitute a distribution by virtue of subsection (2)(b).

Go to Revenue Guidance Notes on TCA

Amendments

1 Substituted by FA98 s43

2 Inserted by FA11 s29(b) and deemed to have come into force and takes effect as on and from 1 January 2011

3 Substituted by FA05 s18(1) with effect from 3 February 2005 (punctuation change)

4 Inserted by FA05 s18(1) with effect from 3 February 2005

5 Inserted by FA01 s85 and applying to payments made on or after 15 February 2001

6 Inserted by FA03 s61(1) and applying as respects any interest paid or other distribution made on or after 6 February 2003

7 Inserted by FA05 s18(1) with effect from 3 February 2005

8 Substituted by FA99 s79

9,11 Substituted by FA02 s39(a) with effect from 1 January 2002. Previously “Member State of the European Communities.

10 Added by FA99 s79

12 Inserted by FA02 s39(a) with effect from 1 January, 2002.

13 Substituted by FA07 s35 and Sch2 with effect from the date of passing of FA07 – 2 April 2007

14 Substituted by FA99 s79

15 Substituted by FA02 s39(b)

Case Law

Whether assets transferred at undervalue to members – 10TACD2016

Freedom of establishment

Different treatment of dividends distributed by resident company to another resident company and to non-resident company. European Commission v Germany [2011] STC 2392

Whether EU law precluded legislation preventing resident company from deducting interest on loan finance granted by parent company resident in another EU state or by company resident in another EU state controlled by such parent company. Test Claimants in the Thin Cap Group Litigation v Revenue and Customs Commissioners - [2007] STC 906; [2010] STC 301; [2011] STC 1045; C-524/04

Concerned German thin capitalization rules which could result in the denial of a deduction for interest when paid to an overseas parent but not when paid to a German parent. This breached the principle of Freedom of Establishment. Lankhorst-Hohorst GmbH v Finanzamt Steinfurt [2002] C-324/00

Distribution - income or capital

Whether distributions under the redeemable preference shares ‘dividends’. First Nationwide v Revenue and Customs Commissioners [2011] STC 1540

Trade benefit test

The satisfaction of a loan owed by the shareholder as consideration for shares did not benefit the company’s trade. – Moody v Tyler (HM Inspector of Taxes). [2000] STC 296

Interim dividend

Interim dividend received when set off through an inter-company account. Murphy (Inspector of Taxes) v The Borden Co. Ltd. [1991] ITR Vol 3 page 559. CLTP 8.1

Double Taxation Relief

Interest which is a distribution under domestic law is not subject to interest withholding tax under a double tax treaty. A treaty cannot impose tax not already chargeable under domestic law; it can only limit an existing change. Murphy (Inspector of Taxes) v Asahi Synthetic Fibres (Ireland) Ltd. [1986] ITR Vol 3 page 246 – CLTP 22.1

Interest free loan

Interest free loans to majority shareholder and whether loans to be disregarded as artificial or to be treated as distributions subject to income tax deductible at source. Commissioner of Taxpayer Audit and Assessment v Cigarette Company of Jamaica Ltd (in voluntary liquidation) - [2012] STC 1045

Appeal Commissioners’ Determination

Whether the transfer of rights attaching to a class of shares was chargeable to income tax as a distribution – 24TACD2018

Revenue Guidance

Irish Tax Treaties – TB 44, October 2001 p9

Irish Tax Review Articles

Ireland as a Location for Investment. Robert Lohan, Irish Tax Review, September, 2002

Re-Characterisation of Interest Payments. Christian Wimpissinger, Irish Tax Review, March, 2003

Related Party Interest Payments to EU and Treaty Residents - A 30-Year Journey to and from 1973. Mary Walsh, Irish Tax Review, March, 2003

Going International with your Business: Some Tax Considerations to be Addressed. Marie Bradley, Irish Tax Review, January, 2010

Distributions under the Companies Act 2014: Changes and Clarifications to the Existing Rules. David Lydon, Ciara O’Herlihy, Irish Tax Review, Issue 4, 2016

Revenue Precedents

Interest: Would interest payable by a qualified company within the meaning of TCA97 s446 on borrowings from group companies in non-treaty countries be treated as a distribution under TCA97 s130(2)(d)(iv)? Interest would not be treated as a distribution under TCA97 s130(2)(d)(iv) subject to the following conditions: a) the interest is charged at a commercial rate; b) the interest would otherwise be recognised (apart from the afore-mentioned section) as an expense to be set against income of the trade; c) the funds borrowed are used solely for qualifying activities certified by the Minister for Finance under TCA97 s446(d) an application for this treatment must be made in letter form to the Revenue Commissioners, Direct Taxes: Incentives Branch, Dublin Castle, Dublin 2. [Note: Following the amendment to Section 452 TCA 1997 by Section 87 FA 2001 this precedent is no longer required for interest payments after 6 April 2001.] Originally published: 07/11/1991 File ref:5049/97

Shares in stock exchange: Redemption of shares in stock exchange where stock broker retires. The redemption would not be treated as a distribution under TCA97 s130 but would be treated as a disposal for CGT purposes. Originally published: 04/09/1989 File ref:IR892028

Corresponding UK Tax Provision

Formerly Section 209, Income and Corporation Taxes Act 1988. Now re-enacted at various places in the Corporation Tax Act 2010. Refer to the Destination Table of that Act for details.

Sections referred to in text

section 11 [Meaning of “control” in certain contexts]

section 131 [Bonus issues following repayment of share capital]

section 132 [Matters to be treated or not treated as repayments of share capital]

section 135 [Distributions: supplemental]

section 321 [Provisions of general application in relation to the making of allowances and charges]

section 436 [Certain expenses for participators and associates]

section 436A [Certain settlements made by close companies]

section 437 [Interest paid to directors and directors’ associates]

section 452 [Application of section 130 to certain interest]

section 519 [Employee share ownership trusts]

section 548 [Valuation of assets]

section 816 [Taxation of shares issued in place of cash dividends]

section 826 [Agreements for relief from double taxation]

section 845A [Non-application of section 130 in the case of certain interest paid by banks]

Sch 11 [Profit Sharing Schemes]

Sch 12 [Employee Share Ownership Trusts]

Cross references

80 Taxation of certain foreign currencies

132 Matters to be treated or not treated as repayments of share capital

133 Limitation on meaning of “distribution” – general

134 Limitation on meaning of “distribution” in relation to certain payments made in respect of “foreign source” finance

135 Distributions: supplemental

137 Disallowance of reliefs in respect of bonus issues

154 Attribution of distributions to accounting periods

267O Treatment of credit return

267Q Treatment of deposit return

267R Treatment of investment return

436 Certain expenses for participators and associates

437 Interest paid to directors and directors’ associates

452 Application of section 130 to certain interest

452A Application of section 130 of Principal Act to certain non-yearly interest

514 Company reconstructions, amalgamations, etc

644AB Treatment of profits or gains from land rezonings

690 Interest and charges on income

817 Schemes to avoid liability to tax under Schedule F

845A Non-application of section 130 in the case of certain interest paid by banks

Sch 1 Supplementary provisions concerning the extension of charge to tax to profits and income derived from activities carried on and employments exercised on the continental shelf