Taxes Consolidation Act 1997 section 438

Loans to participators, etc

Section 438 imposes a tax charge on close companies that make loans or advances to participators or their associates, treating such loans as net annual payments subject to income tax at the standard rate.

• Where a close company makes a loan or advance to a participator (or an associate of a participator), the company is treated as having made a net annual payment and must account for income tax at the standard rate on the grossed-up equivalent of the loan under section 239; this charge forms part of the company's corporation tax liability and must be included on the corporation tax return, but the deemed annual payment is not deductible as a charge on income for corporation tax purposes.
• The term "loan" extends beyond a simple cash advance to include debts incurred by a participator to the close company and debts assigned to the close company by a third party; ordinary trade debts are excluded unless the credit period exceeds six months or the normal terms given to customers, whichever is the shorter.
• The charge does not apply where the total loans to a director or employee do not exceed €19,050, the borrower works full-time for the company or an associated company, and the borrower does not hold a material interest (broadly, more than 5% of the ordinary share capital) in the company; if the borrower later acquires a material interest, the outstanding loan balance becomes subject to the charge at that point.
• Where a loan to a participator is subsequently repaid (in whole or in part), the company may claim relief for the corresponding income tax, provided the claim is made within four years from the end of the year of assessment in which the repayment is made to the company.

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