In order for interest on a loan to qualify for relief, it must be used wholly and exclusively  for the purpose of the trade or  the purpose of property rental or acquiring trading or property rentals assets. A company qualifying for interest deduction must have a material interest in the company that uses the borrowed money and the companies must have a common director. Relief is restricted where the company which uses the money is not within the scope of Irish corporation tax.

In a lending to a trading or property rental company or holding company of either, the money must be used wholly and exclusively by the company or by a connected company for the purpose of the trade; for the purpose of

  • improvement of repair of premises (in the case of a company whose income consists mainly or
  • wholly of rents and gains charged under Case V) or
  • where the company is a company consisting of holding shares etc. , for the holding of such shares, securities etc.

Use by Connected Company

Where the investor company subscribes for shares in another company, the money must be used for purposes equivalent to those above. Prior to FA 2011, it was required only that the investing company have a material interest and common director in the borrowing company or a connected company. From FA 2011, when money is loaned to a company and the money is used by a connected company, the investing company must have material interest and a common director in the connected company that uses the money.

Where a loan is made to an investing company by a connected person and applied in lending to a company, money which is used directly or indirectly in acquiring an asset from a connected company, does not qualify for interest relief.

There are exclusions from the prohibition in the following cases:

  • loans to acquire specified intangible assets or trading stock or an asset acquired as a trading stock;
  • Interest paid on a loan that is applied to lending to another company which is used for the purpose of acquiring a trade which immediately before its acquisition was carried on by a company which is not within the charge to Irish corporation tax.

Purchases Inter-Group

FA 2011 abolished relief in relation to inter-group borrowings used to finance the purchase of assets from another group company.  Interest on the borrowings is not allowed as a deduction in computing profits or gains of a trade.

Before this amendment,  companies could obtain a deduction from trading profits for corporation tax purposes for interest on monies borrowed from connected persons, where they are  used to finance the acquisition of assets from other connected companies.

The provision do not apply to intergroup borrowings to acquire specified intangible assets or trading stock.  They do not apply to loans used to fund the acquisition of a trade which immediately before its acquisition, was carried on by a company which was not within the charge to Irish corporation tax.  The interest relief available, cannot exceed the amount of the profits or gains of the acquired trade for the accounting period, which are taxable.

Where the investor company commences to carry on activities in the acquired trade as part of its trade, then the part of the trade is to be treated as a separate trade and necessary any apportionment of profits is to be made.  This is to be done on a just and reasonable basis.  The amount of those profits are not to exceed the amount which would have been attributed as a distinct and separate company engaged in activities independently and dealing at arm’s length with the investing company.

Restriction on Certain Interest

In the case of loans used to acquire an asset which is leased by the company in the course of a trade,  where immediately before the asset was acquired, it was not in use for the purpose of a trade which was within the charge to Irish income tax, interest relief cannot exceed the amount of profits or gains of the trade for that accounting period, attributable to the acquired asset.

The provision do not apply to interest payable to a company by an investing company, where the sole business of the company that receives the interest is on lending of monies which it has borrowed from unconnected persons.

Interest payable by a qualifying section 110 (securitization vehicle company) is not restricted. Other limits apply.

Non-Resident User

Relief for an Irish company’s interest  on borrowings used by a non-resident company to generate interest income is restricted by FA 2011.  This is done by reference to the amount of interest earned, which is not repatriated. An Irish  company may grant an interest-free loan to a foreign company in its group, in a jurisdiction that gives a deemed deduction for interest on an interest-free loan. This is restricted after FA 2011.

Where a loan to an investing company is applied in  lending to another company and it is applied to another company that falls within the charge to Irish tax and the money is used wholly and exclusively for the purpose of the trade concerned or the trade of a connected company, not within the charge to Irish tax, then relief is restricted.

In this lase case,  the amount of relief given is limited to so much of the interest in an accounting period by the investing company on the loan, as the amount of interest the investing company receives, plus where the interest paid by the investing company exceeds that arising on the loan. The relief for the excess shall not exceed the amount by which the interest paid by the investing company exceeds the interest arising to the connected company in the period in respect of the money so used.

Recovery of Capital

Generally where a borrower recovers capital from the company or a connected company without using it to reduce the loan, interest is lost on the amount equal to the capital recovered.

Where a company issue shares to the company in exchange for shares in another company, the investing company would be deemed, by virtue of the exchange, to have recovered the amount of capital from the company concerned.

The period for accelerated capital allowances of special energy-efficient equipment is extended to end 2014 by the FA 2011.


FA 2011 modernizes the securitization regime.  It extends the assets which may be securitized. Qualifying assets now include commodities, plant and equipment.  It also includes carbon offsets.

FA 2011 denies corporation tax deduction for interest on a profit participating debt to a non-Irish resident, unless the recipient is resident in an EU or tax treaty country which is generally subject to tax or withholding tax has been deducted.  Deductibility remains where the recipient is a governmental entity, pension fund or tax exempt vehicleor  equivalent.

There is a restriction on deductibility of returns for swap payments, where they are paid to non-Irish recipients under a total return swap as defined.


There are anti-avoidance provisions which capture back-to-back loan arrangements, where as a part of or   in connection with a scheme or arrangement for making a loan to the investing company by a person and another entity who is not connected with the investing company directly or indirectly makes a loan to or deposit with or otherwise provides funds to the funding bank or to a person who is connected with the bank, then the loan made to the investing company is deemed to be a loan made to the investing company by a person with whom it is connected.  Accordingly, relief is based on the lower amount.

Section 35 of the Finance Act 2011 provides that in computing credit due for foreign tax on income, trading charges on income must be allocated between territories based on turnover.  Prior to that, there was a greater freedom to apportion.

Finance Act 2017 amends the provisions regarding deduction of interest on loans granted to acquire or lend to a holding company that indirectly holds shares in a trading company through one or more intermediate holding companies. Relief is available for interest where the loan was applied in acquiring shares in or lending to a holding company that holds shares directly in a trading company.

The Finance Act 2017 ensures that the investing company is deemed to recover capital where an intermediate holding company recovers capital from another company. Exceptions are provided.


Important Notice! This website is provided for informational purposes only! It is a fundamental condition of the use of this website that no liability is accepted for any loss or damage caused by reason of any error, omission, or misstatement in its contents. 

Draft Articles; The articles on this website are in draft form and are subject to further review for typographical errors and, in some cases, updating and correction. It is intended to include references to the sources of materials and acknowledgements in the final version. The content of articles with [EU] in the title and some of the articles in the section on Agriculture are a reproduction of or are based on European or Irish public sector information.

Leave a Reply

Your email address will not be published. Required fields are marked *