[14.0.

1] Taxation of companies engaged in manufacturing trades,

certain Trading operations carried on in Shannon Airport and
certain trading operations carried on in the Custom House Docks
area
Last updated August 2014.

Important Note

The scheme of manufacturing relief expired on 31st December 2010. The relief
was only available to companies which commenced a manufacturing trade before
23rd July 1998 or companies which concluded a grant agreement with an
industrial development agency on or before 31st July 1998. The scheme expired
for other manufacturing companies on 31st December 2002 and for licensed
operations in the IFSC and Shannon on 31st December 2005. This master
document reflects how the relief operated under the relevant TCA when it was
available.

Summary

Part 14 TCA 1997 governs the 10% scheme for manufacturing industry generally.
The relief applies to income derived by companies from sales of goods manufactured
by them in the State, whether that income arises from domestic or export sales and to
income from the rendering in the State of manufacturing services (the subjecting of
goods, not owned by the company providing such services, to a process of
manufacture). Retail sales and sales into intervention are excluded.

Section 443

Section 443 defines the “goods” the profits from the sale of which may qualify for
relief under this Part. Broadly, the goods must be goods manufactured in the State in
the course of a trade by the company claiming the relief in respect of that trade. In
addition to this general definition of goods in subsection (1), subsections (2) to (4)
expand on the definition to include certain specific commodities while subsections (5)
to (7) exclude certain goods from this basic definition. Subsections (8) to (19) treat for
the purposes of the relief certain services and activities as being the manufacture of
goods and receipts from the sale of such services and activities as amounts receivable
from the sale of goods. This mechanism ensures that such services and activities are
brought within the ambit of the relief.

“Manufacture” or cognate words are not defined for the purposes of this Part. The
words thus have their normal and natural meaning (that is, manufactured goods are
goods subjected to a process of manufacture as normally understood). Whether or not
a given trading activity constitutes manufacturing for the purpose of relief under this
Part is a question of fact to be determined by the inspector to whom a claim for relief
under section 448 is submitted or, in the event of an appeal against his/her decision,
by the Appeal Commissioners. Guidance as to what constitutes manufacturing for the
purposes of relief under this Part may be obtained from the considerable body of case
law which has arisen on the subject.

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Tests and guidelines to be applied in determining whether an activity is or is not
manufacturing have been laid down by the Courts in a large number of decided cases,
including the following cases:

Cronin V Strand Dairy Ltd., ITR Vol. III, p. 411

McCann V O’Culachain, ITR Vol. III, p. 304

Irish Agricultural Machinery Ltd. V O’Culachain, ITR Vol. III, p. 611

Brosnan V Leeside Nurseries, Supreme Court Decision, 30 Oct. 1997.

Many of the decided cases relate to the legislation prior to the insertion by Finance
Act 1990 of subsection (5) into section 39 Finance Act 1980 which is now section
443(6) TCA 1997.

Meaning of goods

“goods” are goods manufactured within the State in the course of a trade by the
company which is claiming relief under this Part in relation to that trade. The explicit
references in the definition to the trade in respect of which the relief is claimed are
made for the purpose of excluding from the meaning of “goods” for the purpose of the
relief any goods manufactured by the company in the course of a separate trade in
respect of which it may continue to claim export sales relief until the end of its span of
such relief. Such goods are not therefore “goods” for the purpose of the relief
provided by section 448.

Where a manufacturing company supplies its products to another company which then
sells the goods and one company is a 90% subsidiary of the other or both are 90%
subsidiary of a third company, then, sales by the selling company of the other’s
manufactured goods are regarded as sales of goods manufactured by the selling
company. A “90 per cent subsidiary” of a company is defined in section 9 as meaning
a company not less than 90 per cent of the ordinary shares of which are owned by the
other company.

If the inter-company sales show a mark-up over the production costs of the
manufacturing company, that company qualifies in the normal way for relief under
section 448 in respect of the income from the sale of the goods to the selling
company. Accordingly this provision can result in both companies qualifying for the
relief. This is justifiable because, in effect, the companies are a single entity divided
into separate manufacturing and sales units.

Extension of meaning of goods

The definition of goods is extended to include —

 fish produced in the State on a fish farm,

 plants cultivated in the State by the process of plant biotechnology

known as micro-propagation or plant cloning,

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  meat processed in the State in premises approved and inspected under
the European Communities (Fresh Meat) Regulations, 1987 (S.I. No.
284 of 1987) (it should be noted that where meat processing is carried
on in any other premises it may still qualify for relief if it satisfies the
general tests applied to any process to determine whether it constitutes
the manufacture of goods),

 fish processing carried out in the State unless it consists of the

preparation of food for immediate consumption or the fish is sold by
retail.

Exclusions from meaning of goods

Excluded from the definition of goods are goods sold by retail by the manufacturing
company. Sales of goods which would constitute wholesale selling, the direct selling
of goods to a trade for use in the trade or to some other corporate person for use in the
undertaking of that person (for example, a sale of furniture to a church or Government
Department) are not caught by this exclusion.

Goods are not to be regarded as manufactured if the process from which they derive
consists primarily of—

 breaking down bulk materials,

 preservation, pasteurisation and maturation of foodstuffs,

 preparing food or drink for immediate consumption,

 improving or altering articles or materials without imposing on them a

change in character,

 repairing / reconditioning.

This provision does not affect the provisions of subsections (2) to (4) which extend
the meaning of goods or the provisions of subsections (8) to (15) which deem certain
activities to be the manufacture of goods. In all such cases manufacturing relief is to
be available.

This provision is without prejudice to the generality of the existing tests and
guidelines laid down by the Courts to determine whether goods are manufactured.
Accordingly, in determining whether goods are manufactured, it is necessary to
examine both the product sold by the company and the process from which the
products resulted. The product is to be examined to consider what it is, how it
appears, what qualities it possesses, what value it has. The process is to be examined
to identify the extent to which it conferred on the product the characteristics that it
possesses. If the income from the sale of the product is to qualify for relief, the
changes in the product and the extent to which these changes were conferred on the
product by the process must be of sufficient degree to regard the goods as
manufactured.

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This provision emphasises the nature of the process so that in the case of certain
products the nature of the process may be decisive in taking a company outside the
scope of the relief, even if the product test is otherwise satisfied.

It is not possible within the terms of the legislation to analyse a manufacturing activity
into its component parts and to suggest in relation to each part that it could be
excluded by one of these five categories. The activities by which the goods are
produced should be viewed as a single process and no attempt should be made to
break this single process into its component parts. The process carried out by a
company should be looked at in its totality and is only taxed at the standard rate if it
falls primarily into one only of the specified categories.

In addition, a company cannot qualify for the low rate by arranging for some other
person to carry out a manufacturing process on its behalf. A company only qualifies if
it carries out a manufacturing process itself. This exclusion does not apply to closely
connected companies which structure themselves so that one company manufactures
the goods and the other company sells them. In such cases, both companies qualify for
the 10 per cent rate in respect of the manufactured goods by virtue of subsection
(1)(b). That arrangement does not apply, of course, to goods sold by retail.

A company may subcontract part of the work. In such a case the activities of that
company should be examined to see whether, taken together, they are sufficient to
constitute the manufacture of goods.

Intervention sales (normally of butter, milk powder or processed beef) are excluded
from relief under this Part. An anti-avoidance provision relating to indirect sales into
intervention is incorporated so as to ensure that a company which sells goods to a
subsidiary at a normal profit does not get the benefit of the low rate of tax where the
subsidiary on-sells the goods into intervention at the price it paid for them (thus
earning no taxable profit). However, the rendering of manufacturing services (for
example, de-boning) to meat owned by the intervention agency is not to be regarded
as a sale into intervention and, therefore, such a service is not disqualified for the
relief.

Services/activities treated as the manufacture of goods

The rendering of certain services and activities in the State are treated for the purposes
of relief under this Part as the manufacture in the State of goods. As the rendering of
such services/activities does not involve the selling of any actual goods provision is
made to ensure that the receipts from such activities are regarded as amounts
receivable from the sale of goods for the purposes of applying the relief under this
Part. The following are the services/activities concerned.

 The repairing of ships.

 The rendering of engineering services. These are design and planning

services in connection with chemical, civil, electrical or mechanical
engineering works executed outside the territories of the Member
States of the European Communities (including the territorial waters of
such countries). “Works” includes public works such as hospital,
schools, housing estates, etc, or any large construction project, such as

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 dams or harbours. Moveable entities are not regarded as works (for
example, ships or aircraft). Certain fixed oil rigs may, however, qualify
as “works”.

 The rendering of computer services. This encompasses data processing

services and/or software development services and also technical or
consultancy services relating to either of these services for which
employment grants were made by the IDA, the IDA (Ireland) or
Forbairt or for which an appropriate grant or financial assistance was
made by the Shannon Free Airport Development Company Limited, or
for which appropriate financial assistance was made available by
Údarás na Gaeltachta. The effect of this provision is to extend to cases
of on-line transmission of computer-based data processed in the State
the same treatment as is provided for cases where there is a sale of a
tape or disc on which information or programmes had been recorded.

 Qualifying shipping activities (within the meaning of section 407)

carried on in the course of a qualifying shipping trade (within the
meaning of section 407).

A “qualifying shipping trade” is, in effect, a trade carried on by a company which

consists exclusively of qualifying shipping activities. A mixed trade also qualifies in
respect of the part of the trade consisting solely of the carrying on of qualifying
shipping activities and which is treated as a separate trade by virtue of section 407(3).

“qualifying shipping activities” are trading activities carried on by a company which

come under 6 headings related to the use of a qualifying ship. These are —

- the basic activity of a shipping company – the carriage of passengers or

cargo for reward (that is, on a commercial basis) by sea. The carriage must
be “by sea” so as to exclude the element of land transport included in any
arrangement such as door-to-door cargo transport, ferry-train passenger
transport or roll-on/roll-off services. Land transport is excluded so that a
shipping company (whose activities are by virtue of this subsection taxed
at the 10 per cent rate of corporate tax) would not have an unfair
advantage over a company engaged only in land haulage whose profits
could be chargeable to tax at the standard or reduced rate,

- the provision by the company using the qualifying ship for the purposes
just described of on-board services such as the operation of ships cinemas,
bars or restaurants ancillary to the carriage of passengers and cargo,

- the contracting-out to specialist operators, by the company operating the

qualifying ship, of the on-board services just described,

- the subjecting of fish to a manufacturing process on board a qualifying

ship. If a process is considered to be a manufacturing process when
carried on onshore it is also to be treated as a manufacturing process when
it is carried on in a factory ship. Processes treated as manufacture would
typically involve 2 or more of the following processes – filleting, mincing,

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 cooking, smoking, quick freezing and packaging. Each claim should be
examined by reference to the details of the process involved,

- the “wet leasing” of a qualifying ship for use for the purpose of the
carriage of passengers or cargo for reward or the subjecting of fish to a
manufacturing process aboard a qualifying ship. Under a “wet lease” or
“non-demise” charter the lessor provides the ship, crew, fuel, provisions,
etc and is responsible for the direction and control of the ship and the crew
throughout the period of the charter. This is in contrast to a “dry lease” or
“bare-boat” charter under which the lessor provides the ship only and the
lessee is responsible for the provision of the crew and the direction and
control of the vessel and crew. The lease payment in this instance would
be chargeable at the standard rate of corporation tax but if the lessee was
carrying on a qualifying shipping trade the income from that trade would
be chargeable at the 10 per cent rate of corporation tax,

- the transporting of supplies or personnel to, or providing services in

respect of, a mobile or fixed rig, platform, vessel or installation of any kind
at sea.

“qualifying ship” is a seagoing vessel which—

- has majority Irish ownership, or is leased from a foreign lessor without

crew,

- complies with all the requirements of the Merchant Shipping Acts,

including Irish standards as to ship safety and the manning of such ships
with seafarers having Irish Certificates of Competency or Certificates
recognised as equivalent by the Irish Authorities, and

- is of adequate size to engage in reasonable commercial operations with a

modern means of propulsion.

Excluded as qualifying ships whether or not they satisfy any of these criteria are
fishing trawlers (other than a factory ship which would otherwise be treated as a
fishing vessel), tugs (other than certain ocean-going tugs), dredgers and floating rigs
and working platforms of any kind and vessels used for servicing offshore
installations such as oil-rigs, platforms, factory ships and the like.

Also excluded by means of a catch-all provision, is any other vessel, not specified
above, which is of a type not normally used for “qualifying shipping activities”.

 The export by a Special Trading House in the course of selling by

wholesale of goods manufactured in the State by a company other than
the Export Trading House. A Special Trading House is a company
which exists for the sole purpose of selling Irish manufactured goods
by wholesale on the export market. Such companies are required to be
licensed by the Minister for Enterprise, Trade and Employment.

 The repair or maintenance of aircraft, aircraft engines or components.

Excluded are such operations carried on within the Shannon Airport

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 Area as they are entitled to the 10 per cent rate by virtue of section
445.

 The production of a film which is largely produced in the State. The

film must be a film which would be shown in the cinema or on
television or is for training or documentary purposes. At least 75 per
cent of the production work on the film must be carried out in Ireland.

 The remanufacture or repair of computer equipment or subassemblies

by the company or a connected company which originally
manufactured the equipment or subassemblies.

 The sale of goods by wholesale purchased by a co-operative, all or a

majority of the members of which are themselves co-operatives, from
such members where such member would themselves be entitled to
manufacturing relief in respect of such goods.

 The sale by an agricultural co-operative of milk purchased from its

members to a company which is certified as a processor of milk
products. The list of milk products qualifying which is set out in the
subsection may be extended where the Minister for Finance after
consultation with the Minister for Agriculture and Food approves as
milk products other products made from milk or from a by-product of
milk.

 A profit arising from a foreign exchange transaction which is treated

under section 80 as a profit of a trade.

 The production of a newspaper (including the rendering of advertising

services in the course of the production of the newspaper). For this
purpose a “newspaper” is a newspaper which is normally published at
least fortnightly and the printed matter in which consists wholly or
mainly of information on the principal current events and topics of
general public interest. Also the newspaper must be in a format which
is commonly regarded as newspaper format and must be printed on
news print and be intended to be sold to the public.

Advertising services

Advertising receipts of a company which carries on a trade of producing a newspaper,

magazine or similar product are not to be treated as income from the sale of
manufactured goods. This provision, however, does not apply to advertising income
of a newspaper of a type within the meaning of subsection (19). This provision
denies the benefit of the 10 per cent rate to income from the provision of advertising
services rendered in the course of the production of a newspaper (other than a
newspaper within the meaning of subsection (19)), a magazine or other similar
product.

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Manufacturing services

Manufacturing services carried out in the State by one company on materials

belonging to another person may qualify for relief under this Part despite the fact that
the arrangement does not involve a sale of manufactured goods by the company
rendering the services. The cases covered by this treatment of regarding the rendering
of services as the manufacture in the State of goods normally involve a manufacturing
company receiving raw materials or partly-processed goods from another person and
carrying out, for a fee, manufacturing process before returning the goods to their
owner for sale or further processing. If the owner is a company, it would not qualify
for relief on its income from the sale of the goods if it did not itself carry out in the
State a process of manufacture on the goods.

Where transactions take place at artificial prices between associated persons for the
purpose of inflating the amount of a company’s profits to which the relief would
apply and of reducing the profits of the other party to the transaction which would be
liable to tax at the normal rate, the income or losses of both parties fall to be
recomputed for tax purposes on the basis of an arms-length price so as to negative any
tax advantage which would be involved in shifting profits from one party to the
transaction to the other - (section 453).

Relief is not available under this Chapter in respect of corporation tax referable to
income from mining operations or construction operations even where such
income arises in the course of manufacturing activities. Mining operations are as
defined in section 444(1)(a); construction operations are as defined in Chapter 2 of
Part 18 - (section 444).

Section 448 ─ CALCULATION OF MANUFACTURING RELIEF

Section 448 is the substantive relieving provision for the 10 per cent scheme. It
provides for a reduction by a specified fraction in the corporation tax referable to the
income from the sale of goods manufactured in the State by the company claiming the
relief.

The specified fraction is —

 11/16ths in the case of such corporation tax which is referable to the

financial year 1998,

 9/14ths in the case of such corporation tax which is referable to the

financial year 1999,

 7/12ths in the case of such corporation tax which is referable to the

financial year 2000,

 1/2 (one-half) in the case of such corporation tax which is referable to

the financial year 2001,

 3/8ths in the case of such corporation tax which is referable to the

financial year 2002, and

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  1/5th in the case of such corporation tax which is referable to the
financial year 2003 or any subsequent financial year.

The reduction is, in effect, from the standard rate of corporation tax to 10 per cent.

Relief may be given, subject to the making of a claim before the assessment for the
relevant period has become final and conclusive, as respects income from sales of
such goods which arises in an accounting period or part of an accounting period
ending—

 where section 443(11) or (12) applies, on or before the 31 December,

2000,

 in any other case, on or before 31 December, 2002, except in the case

of manufacturing trades being carried on before 23 July, 1998 and
manufacturing trades approved for grant assistance before 31 July,
1998, where title to the 10 per cent rate ceases on 31 December, 2010

It is to be noted that in the case of sections 445 (Shannon) and 446 (IFSC) the relief
given by virtue of these sections is not available in respect of income arising after 31
December, 2002, except in the case of income arising from operations approved for
carry on in Shannon before 31 May, 1998, or approved for carry on in the IFSC
before 31 July, 1998, where title to the 10 per cent rate expires on 31 December,
2005. The section lays down rules for the computation of the relief under this Part.
The principal rule is that the corporation tax referable to income from the sale of
qualifying goods – this is the tax which is to be reduced by the specified fraction – is
to be quantified as the same proportion of the corporation tax referable to the
company’s income (“the relevant corporation tax”) as the income from the sale of
“goods” (quantified by reference to sales) bears to the total income brought into
charge to corporation tax.

“relevant corporation tax” is the corporation tax which would be chargeable for the
relevant accounting period before any deduction from that tax under —

 this section,

 sections 22A, 239, 241, 440, 441, 449, 644B and 827, and

 paragraphs 16 and 18 of Schedule 32.

The resulting corporation tax is then subject to a further exclusion, namely, the
exclusion of the corporation tax chargeable on the part of the company’s profits
attributable to chargeable gains for that period. [See also note on subsection (5A).]

The part of the company’s profits attributable to chargeable gains for that period is
taken to be the amount brought into the company’s profits for the relevant accounting
period for the purposes of corporation tax in respect of chargeable gains before any
deduction for charges on income, expenses of management or other amounts which
can be deducted from or set against or treated as reducing profits of more than one
description (such other amounts would include section 396(2) losses, excess “Case V”
capital allowances (section 308(4)), and group relief (section 420)).

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The purpose of this provision is to enable the relief under this Part to be applied to the
corporation tax referable to the income from the sale of qualifying goods before the
granting of reliefs which are not set against that income but against the tax on that
income. Any relief due under these provisions of the Corporation Tax Acts is, of
course, given in addition to relief under this Part.

The relief

The corporation tax referable to the income from the sale of qualifying goods is
defined as the amount which bears the same proportion to “the relevant corporation
tax” as the income from the sale of qualifying goods bears to the total income for
corporation tax purposes of the relevant accounting period. In other words, the
amount of tax to be reduced by the specified fraction can be determined by the
application of the following formula —

income from sales of ''goods''

Relevant corporation tax x ————————————
total income

The sales of goods must be made in the course of carrying on a trade which consists
of or includes the manufacture of goods.

A company must claim and prove its entitlement to the relief for each relevant
accounting period.

Income from the sale of goods

Where the income of a trade which is the subject of a claim for relief under this Part
arises not only from sales of goods but also from sales of merchandise (that is, goods
other than goods defined in section 443) or from sources other than sales of goods and
merchandise (for example, fees for services rendered) it is necessary to isolate the
income of the trade which arises from the sale of goods.

Income from the sale of goods is after deducting relief in respect of charges, losses,
and excess charges as defined in subsection (1). (An effective 10 per cent rate of
corporation tax is achieved by reducing corporation tax referable to income from
manufacturing described in legislation as income from the sale of goods. Corporation
tax referable to income from the sale of goods is calculated by apportioning
corporation tax for the accounting period between income from the sale of goods and
other income. If income from the sale of goods was not net of the ringfenced losses,
etc. the income from the sale of goods would be overstated, corporation tax referable
to income from the sale of goods would be overstated and, consequently, the
reduction in corporation tax would be excessive so as to result in an effective rate
lower than 10 per cent.)

The company’s income from the sale of goods is to be taken to be the same proportion
of its income for corporation tax purposes from sales of goods and merchandise as the
amount receivable (that is, sales revenue) from the sale of goods bears to the total
amount receivable from the sale of goods and merchandise. The only sales receipts to

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be taken into account for this purpose are those of the trade which is the subject of a
claim for the relief provided by this Part. Effectively, “income from the sale of goods”
is determined by the formula —

Amount receivable from

sales goods
Income from the sale of x ——————————
goods & merchandise Amount receivable from
sales of goods & merchandise

[For any accounting period ending on or after 18th February 2008 trading charges
under S.243A, trading losses under S.396A and group relief under S.420A must be
deducted from the above figure where they have been allowed against the company’s
income for the relevant accounting period from the sale of those goods – see Section
448(3) (b).

Note also that for the purpose of calculating 'total income brought into charge to
corporation tax' as referred to in subsection (2), any amounts allowed under Sections
243A, 396A or 420A and any excepted trade profits (S.21A) must be deducted from
the sum determined by S.4(4)(b)]

The trading income from the sale of goods and merchandise to be so apportioned is a
company’s “income from the sale in the course of the trade of goods and
merchandise” if the receipts of the trade arise from sales of goods and merchandise
only. Where the receipts of a trade include amounts in addition to receipts from sales
of goods and merchandise the trading income referable to sales of goods and
merchandise is to be adjusted to whatever amount the inspector or, on appeal, the
Appeal Commissioners consider to be just and reasonable.

This later provision may apply to a wide variety of receipts such as fees for services
rendered, receipts from insurance against loss of profits or loss of stock-in-trade, or
subsidies which are to be regarded as revenue receipts. Generally the amount to be
deducted from the income for corporation tax purposes of the trade is the total of such
receipts less any attributable expenses. The balance of the income of the trade after
such a deduction is the income of the trade from sales of goods and merchandise.

The company’s income from the sale in the course of its trade from goods and
merchandise” is the amount before any deduction for any of the ringfenced losses,
charges or group relief.

Any distortions which might arise, in determining the income from the sale of goods,
because of the impact of variable levels of duties or VAT on the sale prices of the
various goods and merchandise included in the amounts receivable from the sale of
goods and the amount receivable from the sale of goods and merchandise is
eliminated by allowing the deduction from the amount received from the sales of
goods and merchandise of any amount of duty or VAT paid or charged in respect of
goods or merchandise.

Duty or VAT may increase the cost of raw materials used in the manufacture of goods
or the sale price of goods sold on the home market as opposed to goods exported. By

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eliminating all such variables from amounts receivable from sales of goods or from
sales of goods and merchandise, a more accurate figure for income from sales of
“goods” is obtained.

The inspector, by notice in writing, may call for the furnishing of such information or
particulars as may be necessary to given effect to this provision. The furnishing of
such information or particulars as is required by the inspector is essential if a claim for
relief under this Part is to be admitted.

Exclusion from manufacturing relief calculation of tax charged to higher rate of

corporation tax and of the income underlying that charge

For the purposes of calculating manufacturing relief—

 the “relevant corporation tax” (as defined in subsection (1)) of a

company for an accounting period is reduced by the amount, if any, of
the corporation tax attributable to income which has been charged to
the higher rate of corporation tax under section 21A, and

 the “total income brought into charge to corporation tax” for the
accounting period, calculated in accordance with section 4(4)(b), is
reduced by so much of the profits of the company for the accounting
period as is charged to the higher rate of corporation tax under section
21A. This provision is necessary because, without it, if the corporation
tax of a company included tax charged at the higher rate under section
21A and its total income included income underlying that charge, the
formula used in subsection (2) to calculate manufacturing relief would
not result in the desired effective rate of 10 per cent on manufacturing
income.

Time limit

A claim for relief under this Part must be submitted before the assessment for the
appropriate accounting period becomes final and conclusive.

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