[Updated July 2010]

[2.2.1] Corporation Tax - General Background

[Note: the contents of this Instruction reflect amendments made to the Taxes
Consolidation Act 1997 (TCA) as a consequence of the Finance Act 2010]

1 Who Pays Corporation Tax?

Companies resident in the State, with some exceptions, and non-resident

companies who trade through a branch or agency.

2 What is Corporation Tax charged on?

Corporation Tax is charged on all the profits of companies (incomes and

gains) wherever arising for a financial year (sections 21 and 26 TCA 1997)

(See Tax Instruction 2.2.5 for more details)

3 Rates of Corporation Tax

The rates of corporation tax are as follows:

4 12.5%: This is the standard rate of corporation tax on trading income

Under the self-assessment system the question of whether a company is, or

would be, trading is decided initially by the company itself. For most
companies it would be obvious whether or not they are trading. Where a
taxpayer has a doubt about the tax treatment, he or she may take a view on the
issue and express doubt under Section 955 TCA.

A formal expression of doubt protects the taxpayer from interest and penalties
in the event that Revenue, for example, in the context of an audit, take a
different view of the tax treatment at a later date.

The Revenue Commissioners have published a guidance document “Guidance

on Revenue opinions on classification of activities as trading” – see Revenue
website www. revenue.ie under “Tax Practitioners” and ”Technical
Guidelines” (Tax Briefing 57 of 2004 pages 10 to 12 also refers).

5 25%: Rate for Non-Trading Income and Income from Certain Excepted
Trades

This rate applies to non-trading income including income chargeable under

Case III (e.g. discounts, interest, foreign income), Case IV (miscellaneous
income) & Case V (rental income from land & buildings in the State) of
Schedule D. Also included at this rate is income from activities which consist
of working minerals, petroleum activities & dealing in or developing land,
other than construction operations (Section 21A TCA 1997).

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6 Deposit Interest

With regard to deposit interest the general position is that it is prima facie
passive income and is assessable as Case III/IV income (25%). In order for
alternative treatment to apply, there is a very high burden of proof on the
taxpayer. Revenue will accept that deposit interest arising in two specific
circumstances is assessable as Case I income. These are in relation to (a)
where a Regulatory Capital Requirement exists and (b) where Capital is
integral to the trade.

(See Tax Briefing 44 pages 36 to 37 of June 2001).

7 10%: Manufacturing Rate

Certain companies engaged in manufacturing have their profits taxed at an

effective rate of 10%. This 'manufacturing rate' is in the process of being
phased out but remains in existence for some companies with regard to
manufacturing activities that were carried on before 23 July 1998 (or grant
approved on or before 31 July 1998) until it expires on 31 December 2010 i.e.
for accounting periods ending on or before 31 December 2010 (See part 14
TCA 1997)`.

[See Tax Instruction 2.2.2 “Rates of Corporation Tax” for a full list of CT
Rates].

8 25%: Rate for Company capital gains

Companies’ capital gains (other than gains from disposals of development

land) are computed in accordance with capital gains tax principles and are
chargeable to corporation tax at the rate of 25%. Companies’ chargeable gains
are included in companies’ profits for Corporation Tax purposes and are
charged to tax under a formula that means that tax is paid at a rate equivalent
to the rate of capital gains tax. [section 21(3) and section 78 TCA 1997].

Gains realised by companies from disposals of development land are

chargeable to capital gains tax and are not, accordingly, included in profits
chargeable to Corporation Tax [sections 648 and 649 TCA 1997]

[Note: section 44 of the Finance (No. 2) Act 2008 increased the rate of CGT
from 20% to 22% in the case of a relevant disposal made on or after 15
October 2008. Section 14 Finance Act 2009 increased the rate of CGT from
22% to 25% in the case of a relevant disposal made on or after 8 April 2009]

Profits from dealing in development land

Profits from a trade of dealing in development land are subject to the higher
25% rate of corporation tax under section 21A TCA. Profits from dealing in
development land include profits attributable to preparatory development work
on land up to but not including laying of foundations. However, profits from a
trade of dealing in fully developed land (i.e. land which is built on and cannot

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 reasonably be further developed for at least 20 years) are subject to the 12 ½
% corporation tax rate.

Section 11(1)(a) Finance Act 2009 abolished the effective 20% rate that
applied to trading profits from dealing in residential development land
(previously provided for under section 644B TCA by reducing by one-fifth the
tax, which is charged in accordance with section 21A) with effect from 1
January 2009. Profits or gains on dealing in residential development land are
now charged at the general rate of corporation tax that applies to dealing in
land, which is 25%.

9 Basis of Assessment

Corporation Tax is assessed on the profits of a company's accounting period at

the relevant corporation tax rate in force during the accounting period.

Where the rate of Corporation Tax changes during an accounting period, the
profits of that period are apportioned on a time basis and taxed at the
appropriate rate for the purpose.

[See also Tax Manual 2.2.5 for a full outline of the basis of, and periods for
assessment (section 27 TCA)].

10 Accounting Period [section 27(2) and (3) TCA 1997]

An accounting period for tax purposes is a period of not more than twelve
months and is normally the period for which the company makes up its annual
accounts.

If a company changes the date on which it makes up accounts, it should notify

the relevant Revenue tax district of the change as soon as possible. This will
help to ensure that, where possible, the form CT1 and the Preliminary Tax
Notice will issue for the correct accounting period, and payments made will be
correctly brought to account (Extract from Tax Briefing, issue 5 page 7
January 1992).

11 Company Residence - liability of companies resident in the State

A company resident in the State is liable to Corporation Tax on its worldwide

profits, not just its Irish source profits. Whether or not these profits are
brought into Ireland is irrelevant for this purpose. Foreign profits are subject to
double taxation relief under Part 35 TCA. A non-resident company trading in
the State through a branch or agency is liable to corporation tax only on the
Irish sourced profits of its branch.

[See Tax Instruction 2.2.3 for more detailed information on companies

resident in the State and Tax Instruction 2.2.4 for companies not resident in
the State].

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12 Paying Corporation Tax & Filing Obligations

For Corporation Tax, a pay and file system (self-assessment) operates with
preliminary tax being paid in advance [see Tax Briefing issues, 52 (page 7), 53
(page 25) & 56 (page 23].

This means that a company, to avoid surcharge on late returns, interest and
penalties, must by the return filing date in any year have—

• met its preliminary tax payment obligations for that tax year; and

• filed its corporation tax return and paid any balance of tax due for the
year to which the return relates.

This latest payment date applies whether or not Revenue have made an
assessment to tax on the taxpayer by that date.

(Part 41 TCA 1997 - “Self Assessment” refers).

Electronic filing and payment of tax - Larger companies (i.e. with turnover
and number of employees greater than €7.3m and 50 respectively) are required
to file their CT1 return electronically under the Revenue On-line Service
(ROS) while all other companies have the option to do so [See Revenue eBrief
No. 3/10 dated 22 January 2010]. For further information on the ROS service
check the Revenue website www.revenue.ie in the dedicated section marked
ROS.

The specified return date for the chargeable period is the date by which the
company must make a return of income, profits or gains for a chargeable
period. In the case of a company, a return must be made within 9 months of
the end of the company’s accounting period, but where this period ends after
day 21 of the month in which this period ends, the return must be filed by day
21 of that month [Section 950(1) TCA 1997 – “Interpretation Section”] or by
day 23 in the case of returns filed electronically (21/23 day rule).

Form CT1 incorporates Extracts From Accounts' pages in place of a

requirement to submit full audited accounts of the company. A full set of
accounts must be submitted where the turnover exceeds a limit set out in the
relevant Form CT1.

There is an obligation on companies to prepare and furnish to the Collector

General a return [CT1], including, where applicable, a Third Party Return,
Form 46G (company)*. This must be done within 9 months of the end of the
company’s accounting period. A return must be made even though a company
may not have been notified to do so by the inspector. Penalties apply for
failure to submit returns [Section 951(1) TCA 1997 – “Obligation to make a
Return”].

*Form 46G includes payments made, (in the course of a company’s trade,
business or activity when the total to any taxpayer in the year exceeds €6,000
and where tax was not deducted), for services rendered in connection with the
trade, business or activity, including payments for services provided in

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connection with the formation, acquisition, development and disposal of the
trade, business or activity (including such payments made on behalf of others).
Particulars of other valuable consideration i.e. where the payment for the
services provided is given in a form other than money and payments for
copyright are also to be included on the form. The form also includes a list of
payments which may be excluded [section 894 TCA refers].

There is provision for an inspector to exclude persons from the obligation to

deliver a return. Where this happens, the person is advised by notice in writing
and the notice is to specify for how long the exclusion is to operate. The
provision is intended to apply, for instance to a company which satisfies the
inspector that its income, allowances and other circumstances are such that it
is not likely to have any liability to tax for one or more chargeable periods
(Section 951(6) TCA 1997). However, should a company in such a situation
become chargeable to capital gains tax for any year of assessment, then that
company has an obligation to make a return of its chargeable gains for that
year [section 951(6)(b) TCA 1997].

A company may be required by notice served on it by an inspector or other

officer of the Revenue Commissioners to make a return of its profits. The
return must detail the profits from each source of income, charges, annual
payments, distributions, management expenses, payments received under
deduction of tax and all disposals and acquisition of assets in the accounting
period. If the company fails to make this return or makes an unsatisfactory
return, an authorised officer may inspect, and take copies of or extracts from,
the company’s accounts, books and records.

(Section 884 TCA 1997 - Returns of profits)

Revenue eBrief No. 51/2007 “Completion of returns for cases with turnover in
excess of €20 million” sets out guidelines for practitioners on the completion
of returns for cases with turnover in excess of €20 million.

The eBrief also sets out new requirements for such cases with regard to the
completion of Accounts Menus on the CT1 return.

Through TALC, Revenue has reached agreement with practitioners that all
cases with turnover in excess of €20 million will now provide entries in a
specific selection of fields from the accounts menus in their Returns.

In addition, LCD cases will continue to file full paper accounts. Other cases
with turnover in excess of €20 million will file full accounts when requested.
All other cases must continue to complete all relevant data fields on the
accounts menus on their Return, as heretofore.

This is effective with regard to corporation tax returns for accounting periods
ending on, or after 31 July 2007 and filed on or after 1 August 2007.
Operational Instruction 2007 No. 66 “Tax Returns Mandatory Fields” also
refers.

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 Returns should be filed with the Collector General's Division, PO Box 354,
Limerick, unless they are being filed electronically.

13 Late submission of returns

If a company fails to submit a return on time, a surcharge will be imposed.

The surcharge is 5% of the tax due (up to a maximum of €12,695) in the case
of a return lodged within 2 months of the return filing date, and 10% of the tax
due (up to a maximum of €63,485) where the return is made more than two
months after the return filing date (Section 1084(2) TCA 1997).

In addition to the surcharge, there are restrictions on the use the company can
make of certain reliefs and allowances in the event of the return not being
lodged on time (Section 1085 TCA 1997).

14 Preliminary Corporation Tax (section 958 TCA 1997)

[see Tax Briefing 48 (page 1), 49 (page 14), 53 (page 26)

(see Revenue eBrief No. 43/2006; No. 51/2006, No. 56/2007 and No. 17/09 )

A company is obliged to pay to the Collector General the amount of

preliminary tax appropriate to the accounting period.

The total amount of preliminary tax paid must be equal to or greater than 90%
of the company's final liability for the accounting period.

Special provision is made for small companies, new start-up companies and
large companies – see below.

15 When is Preliminary Corporation Tax due for small companies

For companies with a tax liability not exceeding €200,000 (in their previous
accounting period), preliminary tax is payable in one instalment 31 days
before the end of the accounting period. It must be remembered that this
amount is payable not later than the 21st day (23rd for electronic returns) of the
month preceding the end of the accounting period - e.g. for a company whose
accounting period ends on 31/12/2009 the company must pay its preliminary
tax by the 21/11/2009 (23/11/2009 for electronic returns) [this is known as the
the “21/23 day rule”].

16 Small companies

A small company is a company whose Corporation Tax liability in the

preceding accounting period does not exceed €200,000 (the limit increased
from €150,000 (Section 47 Finance Act 2008) and has effect as respects
accounting periods in respect of which preliminary tax is payable after 5
December 2007). Small companies have the option of paying their preliminary
tax at the lower rate of 90% of the final liability of the current accounting
period or 100% of the final liability of the previous accounting period.

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17 New Start-up companies

New start-up companies with a corporation tax liability of €200,000 or less,

for their first accounting period are not required to pay preliminary tax in
respect of that first accounting period. They are required to pay their final CT
liability for that accounting period at the same time as they are required to
submit their tax returns (9 months after the end of the accounting period). The
€200,000 limit was increased from €150,000 (Section 47 Finance Act 2008)
and has effect as respects accounting periods in respect of which preliminary
tax is payable after 5 December 2007).

(See eBriefs Nos. 43/2006 20 November 2006 and 51/2006 8 December 2006).

18 When is Preliminary Corporation Tax due for large companies

Finance (No.2) Act 2008 provides for revised arrangements for the payment of
preliminary tax by large companies with a tax liability of more than €200,000
(in their previous accounting period).

The new arrangements provide for payment of preliminary tax by large

companies in two instalments.

The first instalment is payable in the 6th month of the accounting period (i.e.
21st/23rd June for a company with calendar year accounts) and the amount
payable will be 50% of the corporation tax liability for the preceding
accounting period or 45% of the corporation tax liability for the current
accounting period.

The second instalment is payable in the 11th month of the accounting period
(i.e. 21st/23rd November for a company with calendar year accounts) and the
amount payable will bring the total preliminary tax paid to 90% of the
corporation tax liability for the current accounting period.

The revised arrangements apply where the accounting period is more than 7
months in length (for shorter accounting periods, preliminary tax of 90% of
tax liability is payable in one instalment as before).

[Revenue eBrief No. 17/09 13 March 2009 refers].

19 Large companies – notional allocation of preliminary tax payments

between group members

In order to minimise the interest charges that would otherwise arise for large
companies if their preliminary tax payments fell short of 90%, notional
allocation of preliminary tax payments between group members for the
purposes of assessing the adequacy of preliminary tax payments made by the
group for interest charges purposes is permissible. The scheme operates by
allowing a group company with excess preliminary tax to notionally surrender

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 that excess to another group company with a shortfall in preliminary tax. It is
important to note, however, that for such re-allocation to take place the
claimant company must pay 100% of its Corporation Tax liability by its return
filing date. A company wishing to avail of the provisions of this legislation,
should complete the form “Notional allocation of Preliminary Corporation Tax
payments in accordance with Section 958 (11) of the Taxes Consolidation Act
1997” available on the Revenue Commissioner’s web site (www.revenue.ie)
or from the Collector General’s Office Sarsfield House Limerick.

20 Balance of tax

Under the 'Pay & File' system the balance of tax due is payable at the same
time as the company is due to file its return i.e. within nine months of the end
of the accounting period, subject to the 21 day rule referred to above. The
balance of tax due is the total corporation tax liability of the company for the
accounting period less the amount of preliminary tax already paid.

Note:

See separate Tax Instruction 13.2.4 with regard to Section 438 TCA 1997
[Loans to Participators] and Preliminary Corporation Tax

(Revenue eBrief No. 56/2007 7 November 2007 refers)

21 What expenses can a company set against its profits?

When computing the amount of profits or gains to be charged to tax under

Case 1 of Schedule D (trading income) a company is, in general, entitled to
deductions in respect of revenue expenditure wholly and exclusively incurred
for the purposes of its trade [Section 81(2)(a) TCA 1997]. It is not, however,
entitled to claim a deduction in respect of business entertainment expenses nor
is it entitled to claim a deduction in respect of capital expenditure.

22 Capital Expenditure

As a general rule a company is not entitled to claim a deduction in respect of

capital expenditure. Where a company has depreciated capital assets for the
purposes of computing its 'accounting' profit, the depreciation charges are
added back when computing the profit for taxation purposes. However, the
Tax Acts allow certain types of capital expenditure to be deducted. Capital
allowances, usually in the form of wear and tear allowances and various types
of industrial buildings allowances, are available under the TCA 1997 for -

• industrial buildings (section 268)

• commercial buildings in designated areas (part 10)

• third level education buildings (section 843)

• childcare facilities (section 843A)

• plant and machinery (section 284)

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 • computer software (section 291)

• dredging (section 303)

• vehicles (section 374)

• farm buildings (section 658)

• milk quotas (section 669B)

• mining and petroleum (part 24)

• intangible assets (section 291A)

• scientific research (section 765)

• transmission capacity rights (section 769B)

Capital allowances are not available in relation to industrial and commercial

buildings for most of the incentive schemes/designated areas where
construction expenditure is incurred after 31 July 2008.

Capital allowances are given at different rates, depending on the particular

asset, e.g. wear and tear allowances for plant and machinery are given at an
annual rate of 12.5% of the capital expenditure over 8 years.

Accelerated Capital Allowances for Energy-Efficient Equipment

(companies only)
Section 46 Finance Act, 2008 (now Section 285A TCA, 1997) introduced a
new incentive for the provision of certain energy-efficient equipment for use
in a company’s trade. Accelerated capital allowances of 100% of the capital
expenditure incurred can be claimed for the year in which the qualifying
equipment is provided and used. The scheme runs for a trial period of 3 years.
The scheme has been extended in subsequent Finance Acts.

Eligibility of products can be checked through the web site of the Sustainable
Energy Authority of Ireland (SEAI) www.seai.ie .

[Tax Instruction 9.2.4 provides detailed information on the scheme].

23 Intangible Assets Scheme

Section 291A TCA 1997 (inserted by section 13 of Finance Act 2009)

provides relief in the form of capital allowances against trading income for
companies incurring capital expenditure on the provision of intangible assets
for the purposes of a trade. The scheme applies to a broad range of intangible
assets (e.g. patents, copyright, trademarks, know-how) which are recognised
as such under generally accepted accounting practice and which are listed as
specified intangible assets in section 291A(1). Allowances are based on the
amount charged to the profit and loss account of the company for the

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 accounting period in respect of the amortisation, and any impairment, of the
intangible asset. However, companies can opt instead for a fixed write-down
period of 15 years at a rate of 7 per cent per annum, and 2 per cent in the final
year. Allowances are ring-fenced to the separate trade in which qualifying
intangible assets are used (as defined in section 291A(5)) and may not exceed
80% of trading income (before such allowances) of that trade in any
accounting period. Where interest is payable on borrowings in respect of
capital expenditure incurred on intangible assets, such interest is included in
the 80% limit.

Full details of the scheme, including amendments made in Finance Act 2010,
are provided in Tax Instruction 9.2.5.

24 Interest and annual payments

A company is normally entitled to deduct payments of interest (other than

interest treated as a distribution), royalties and other annual payments made by
it in computing its Corporation Tax liability. These are allowed as charges on
income under section 243 TCA 1997.

25 Dividends and other distributions

Dividends and other distributions made by a company (including certain types

of interest) are not deductible in computing trading profits.

Dividends and other distributions made by Irish resident companies are liable
to Dividend Withholding Tax (see Tax Briefing, issues 35, 36 and 41) except
where these are made to qualifying non-resident persons or excluded persons
(section 172D TCA). [See Tax Instruction 6.8A.1 for information with regard
to Dividend Withholding Tax (DWT)].Dividends received by Irish resident
companies from other Irish resident companies are not chargeable to
Corporation Tax, because such dividends are already subject to corporation
tax within the dividend paying company.

Foreign dividends are chargeable to corporation tax under Case III of

Schedule D. In general such profits are chargeable at the 25% rate of
corporation tax. However, since 1 January 2007 dividends received by a
company within the charge to Irish tax which are paid out of the trading profits
of a non-resident company that is resident in an EU Member State or in a
country with which Ireland has a tax treaty are charged at the 12.5% rate of
corporation tax. The application of the 12.5% rate is by election with the
company’s corporation tax return.

Section 50 of the Finance Act 2010 made a number of changes to the taxation
of foreign dividends received on or after 1 January 2010. Firstly, the section
extends the 12½% rate to dividends paid out of the underlying trading profits
of companies resident in non-treaty countries where the company is owned
directly or indirectly by a quoted company. Secondly, the section simplifies
the rules for identifying the underlying profits out of which dividends are paid
for the purposes of determining the rate of tax to be applied to those dividends
(12½% or 25% as the case may be). The section provides that once a dividend

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 is identified by the paying company as paid out of specified profits (which
could be trading or non-trading profits), the rate of tax will be determined by
reference to the trading or non-trading nature of those specified profits. The
section also exempts from corporation tax foreign dividends from portfolio
investments (that is, holdings of less than 5%) that form part of the trading
income of a company.

26 Relief for pre-trading expenditure

Expenditure which is wholly and exclusively laid out for the purposes of a
company's trade or profession in a three year period before commencement is
allowed as a deduction in calculating the trading income of that trade or
profession following commencement. (See section 82 TCA 1997 & Tax
Briefing issue No.27 August 1997).

27 Exemptions from Corporation Tax

Provisions of the Income Tax Acts conferring an exemption from income tax
have a like effect for corporation tax so far as is consistent with the
Corporation Tax Acts. Thus, a company which would be exempt as a charity
from income tax on its income is exempted from corporation tax.

Part 7 TCA 1997 Chapters 2 and 3 exempts income from certain bodies from
corporation tax. Chapter 3 (section 227 TCA 1997) refers to the exemption
from corporation tax of “Certain income arising to specified non-commercial
state-sponsored bodies “. A full list of these bodies is contained in Schedule 4
of the Act.

Tax exemption for new start-up companies [Finance (No. 2) Act 2008 and
Finance Act 2010]

Relief from corporation tax is available for new start-up companies that are
incorporated on or after 14 October 2008, which commence to trade in a
qualifying trade in 2009 and whose corporation tax liability does not exceed
€40,000 in a 12 month accounting period. Marginal relief is available for
companies with a corporation tax liability between €40,000 and €60,000,
Relief applies during the first three years of operation subject to the
provisions of section 486C TCA 1997. Section 45 of the Finance Act 2010
extends the relief to such companies commencing to trade in 2010. The
purpose of section 486C is to provide a kick-start to new business activity in
the traded sector of the Irish economy [detailed information with regard to this
relief is available in Tax Briefing issue 6 June 2010].

28 Loss Relief

(See Tax Briefing 51 January 2003).

A company incurring a trading loss in an accounting period can:

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• carry that loss back for offset against the total profits of its immediately
preceding accounting period and thereby obtain a tax refund of part or
all of corporation tax paid for that preceding period,
• offset the loss against other profits of the company for the current
accounting period,
• offset the loss against the profits of another group member for the
current accounting period (group defined by reference to 75%
ownership/ control), or
• carry the loss forward for offset against trading profits (of the same
trade) in subsequent accounting periods.

In the case of a company going out of business, terminal loss relief is available
under which trading losses in the last 12 months of the trade may be set off
against trading income of the preceding 3 years with a refund of tax payable as
a result.

In view of the different CT rates for trading income (12½ % or 10%) and non-
trading income (25%), trading losses are first offset against trading income and
if there is any excess unused amount of losses this excess amount may be set
against the corporation tax payable on other income by way of a credit on a
“value basis”. To the extent that the excess amount consists of a 12½ % trading
loss or a 10% trading loss, corporation tax for the accounting period is reduced
by 12½ % or 10% of that loss. For example if the company has an unused
trading loss of, say, €100,000 and a chargeable gain of €100,000 the company
can get relief for the loss at the rate of 12.5% against the liability on the
chargeable gain. Tax due on the chargeable gain is €25,000 and the company
can get loss relief of €12,500 leaving a net liability of €12,500.

Case V losses may be carried back and offset against rental income of the
preceding period and any remaining loss may be carried forward for offset
against future rental income. A Case IV loss may be offset against
miscellaneous profits charged under Case IV of the same or any subsequent
accounting period.

In relation to losses incurred by subsidiary companies resident in other

jurisdictions, legislation was introduced in 2007, following the ECJ judgement
in the Marks and Spencer case, to allow relief for losses incurred by a 75%
subsidiary of an Irish resident company where the subsidiary is resident in an
EU/ EEA country and where the loss is not available for offset in that or any
other EU/EEA country (section 420C TCA 1997).

In the case of losses incurred by a foreign branch of an Irish resident company,

such losses are included in the company’s tax computation as an Irish resident
company is chargeable to tax on its worldwide income.

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29 Surrendering losses etc. & Group Relief – what can be surrendered

Members of a group may surrender current year trading losses, excess charges
on income, excess management expenses (in the case of investment
companies) and Case V excess capital allowances.

30 What are the conditions to claim relief

Two companies are members of a group if one is a 75% subsidiary of the other
or both are 75% subsidiaries of a third company. Note that a company is a
75% subsidiary of another company where not less than 75% of the ordinary
share capital is owned directly/indirectly by that company.

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