Section 441 TCA 1997 provides for a surcharge on undistributed income of certain service companies.
The section defines a service company as including close companies where the principal part of the company’s income is derived from:
The carrying on directly of a profession
The provision of professional services
Or a company
Which has or exercises an office or employment.
Also included are:
The provision of services or facilities to such companies, or
The provision of services or facilities to an individual or partnership carrying on a profession. However, not included in the latter are genuine cases where the services or facilities are provided for persons not connected with the company.
As the tax acts do not define “profession” it must be given its ordinary meaning in accordance with the general principles of statutory construction. In the tax case of CIR V Maxse, 12 TC 41, it is stated that profession involves an occupation requiring either intellectual skill, as in painting, sculpture or surgery or skill controlled by the intellectual ability of the operator. It distinguishes this from an operation, which is substantially the production or sale of commodities.
While some activities obviously fall within this definition and are easily accepted as being the exercise of a profession, such as medicine or law, there may be questions about the status of others. Each case should be examined with regard to its own particular facts and the question of degree is important.
However the following are regarded as being professions and as falling within the provisions of Section 441:
While the above are considered to be providing professional services, the list is not intended to be an exhaustive list of all possible professions.
The following activities are generally not considered to constitute the carrying on, of a profession:
Auctioneers of livestock in a cattle mart
The operation of a retail pharmacy
Public relations companies
It is also considered that whereas accountancy comes within the meaning of profession, bookkeeping, payroll and VAT compliance activities would not in themselves constitute a professional activity. Any business involving tax planning, be it investing or structuring, would come within the general heading of accountancy. It is considered that this encompasses financial services.
It should be noted that while it is accepted that the Case 1 income of insurance broking companies is not within the scope of Section 441, deposit interest on deposits held by such companies are not regarded as arising in the course of the company’s trade unless the company can satisfy the very high burden of proof that the deposits are integral to its trade. (See Revenue Information Notice “Deposit interest – Whether a trading receipt”). As such, therefore deposit interest is assessable Case III and is within the scope of the Section 440 surcharge on undistributed investment income.