Irish Revenue has published a new Tax and Duty Manual – Part 36-00-19 Interest on loans to defray money applied for certain purposes 27 November 2024, providing guidance on section 840A TCA 1997.
Section 840A is an anti-avoidance provision which restricts the ability of certain companies (referred to as “investing companies”) to claim a deduction for interest payable on certain connected party borrowings to fund the acquisition of certain assets from other group companies.
In general, section 840A provides that in computing the amount of the profits or gains to be charged to corporation tax under Schedule D, no deduction is available for investing companies in respect of any interest payable on loans—
- for the acquisition of assets from a company connected with the investing company,
- where the loan is made to the investing company by a person who is connected with the investing company.
For the purposes of section 840A, section 10 TCA 1997 is applied to establish whether persons are connected. Consequently, “control”, as used for determining connected person, is to be construed in accordance with section 4321. Section 840A(2)(b) provides that interest on any form of refinancing such a loan is similarly not deductible.
Section 840A(2) refers to computing the amount of the profits or gains to be charged to corporation tax under Schedule D. Accordingly, the provision is not confined to profits of any trade or profession i.e. those under Schedule D Case I/II. The provision extends to other sources of income that are taxed under different cases of Schedule D. A practical example of the scope would be rental income, i.e. Schedule D Case V income. Where a connected party loan is used to fund the acquisition of a property from another connected company, a deduction for such interest (which might otherwise have been deductible by way of section 97) is, in general, not available in calculating the amount of rent subject to tax.
