Section 247

Definition

Section 247 of the Taxes Consolidation Act deals with the deductibility of interest on loans used to buy shares or lend money to a trading or rental company. 

What is Section 247?

Section 247 of the Taxes Consolidation Act provides an incentive for companies to invest in other businesses by making the interest on related loans tax-deductible. It allows companies to claim tax relief on interest paid on loans taken out specifically for these purposes.

The primary condition for benefitting from this relief is that the company must use the borrowed funds either to purchase shares in another company or to provide a loan to another company. The recipient company must be engaged in a trade or business, or, in certain cases, involved in the business of renting property.

For the interest to be deductible, the borrowing company must have a certain level of control over the company in which shares are acquired or to which money is lent. Typically, this means owning a significant portion of the company’s share capital, thereby making sure that the investment is genuinely intended to support or expand the business operations of the recipient company.

The purpose of Section 247 is to encourage investment in business activities by allowing companies to offset the cost of financing against their taxable income. This can be particularly beneficial in facilitating corporate acquisitions, mergers, and expansions by reducing the overall tax burden.

Example of Section 247

A manufacturing company in Cork takes out a €500,000 loan to acquire a 60% stake in a smaller engineering firm. Under Section 247 of the Taxes Consolidation Act, the interest paid on this loan is tax-deductible. 

Over the year, the company pays €20,000 in interest on the loan. By claiming this interest as a deductible expense, the manufacturing company reduces its taxable income, thereby lowering its overall tax liability.