Corporation Tax
Scope of corporation tax
All companies resident in the State and all non-resident companies that carry on a trade in the State through a branch or agency, subject to specific exceptions, are liable to corporation tax.
A company that commences to carry on a trade, profession or business is obliged to deliver to the Revenue Commissioners a written statement within thirty days of commencement containing such information as the name of the company, its registered office, the name of the secretary and the nature of the trade, profession or business.
The penalty for not submitting such a statement is €630 on the company and €125 on the secretary. If judgment is given and a statement is still outstanding, a further penalty of €60 per day is payable. An Inspector of Taxes has the power to make corporation tax assessments on any company, whether it is resident in the State or not. The appeal provisions that exist for income tax purposes also apply for corporation tax purposes.
Rate of tax
The standard rate of corporation tax is as follows.
|
Financial year |
Standard rate |
|
2003 & onwards |
12.5% |
|
2002 |
16% |
|
2001 |
20% |
|
2000 |
24% |
|
1999 |
28% |
With effect from 1 January 2001 the following rates of corporation tax apply:
(i) 10%
Applicable to the trading profits of manufacturing companies and certain IFSC and Shannon Airport Zone companies
(ii) 12½%
Low rate applicable where Schedule D, Case I and II, income does not exceed €254,000 per annum. Profits taxable at 10% or at 25% are excluded.
(iii) 20%
Applicable to profits arising from certain residential land transactions.
(iv) 20%
Standard rate applicable to Schedule D, Case I and II, profits, with the exception of certain land dealing activities etc.
(v) 25%
Standard rate applicable to Schedule D, Case III, IV and V, certain land dealing activities and income from working minerals and petroleum activities.
Basis of assessment
Corporation tax is assessed on the profits of a company’s accounting period at the rate of tax 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 an appropriate rate for the purpose of determining the corporation tax charge for the whole accounting period. An accounting period is a period of not more than 12 months and is normally the period for which a company makes up its accounts.
R&D tax credit
Finance Act 2004 introduced a 20% tax credit for qualifying research and development expenditure for companies engaged in in-house qualifying research and development undertaken within the European Economic Area. The scheme of relief will continue until 31 December 2013. The credit is subject to a number of conditions and EU approval. The legislation sets the base year as 2003 for calculating the incremental qualifying R&D expenditure incurred in accounting periods ending in the period 31 December 2004 to 31 December 2013. A credit of 20% of the incremental expenditure on R&D can be offset against a company's corporation tax liability. For 2014 onwards the base year will be the corresponding year 10 years before i.e for 2014 the base year will be 2004.
Payment of corporation tax
From 2002, detailed rules have been introduced for the payment of corporation tax. The aim of the new rules was that by 2006 all preliminary tax of a company would have to be paid one month before the end of the accounting period. Preliminary tax is at least 90% of the final corporation tax liability. The new regime was introduced on a phased basis between 2002 and 2006. In the transition period the percentage of preliminary tax payable one month before the end of the accounting period was as follows.
Accounting period ending in:
|
2002 |
20% (subject to special arrangements as set out below) |
|
2003 |
40% |
|
2004 |
60% |
|
2005 |
80% |
|
2006 |
100% |
During the transition period there were effectively two to three instalments of preliminary tax: the first instalment (i.e. 20%, 40% etc.) payable one month before the end of the accounting period, and the second instalment (to bring the total of both instalments up to at least 90% of the final liability) payable six months after the end of the accounting period. Any remaining liability was to be paid by the company as part of their pay and file submission, nine months after the end of the accounting period.
Dividends and other distributions
Dividends and other distributions (including certain types of interest) are not deductible in computing trading profits. Dividends and other distributions paid by a company resident in the State are not chargeable to corporation tax when received by a company resident in the State.
Interest and other 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. In certain circumstances the company may have to deduct income tax from the payments and account for it to Revenue.
Patent royalties
Full relief from corporation tax is allowed in respect of royalties derived by an Irish-resident company in respect of a patent if the work leading to the grant of the patent was carried out in the State. The royalties must be paid in connection with a manufacturing process or by a party unconnected to the company to qualify for relief. Relief from income tax is, in certain circumstances, available to shareholders in respect of all or part of any distribution made by a company out of its royalty income.
Company capital gains
Capital gains, other than gains from development land, are included in a company’s profits for corporation tax purposes and are charged to corporation tax under a formula that takes into account the appropriate rate of capital gains tax. Gains by the companies from the disposals of development land are chargeable to capital gains tax and are not, therefore, included in profits chargeable to corporation tax (see section on capital gains tax).
A company that ceases to be resident in the State is treated as having disposed of all of its assets at their market value when it so ceases. Assets that continue to be used in Ireland by a branch or agency of the company or where the company is ultimately controlled by residents of a tax treaty partner country are not subject to this provision.
Finance Act 2006
Restriction of certain interest relief
Finance Act 2006 introduced measures to restrict the use of the interest relief provisions of section 247 TCA 1997 in the context of transactions between related companies – the amendment applies to loans made on or after 2 February 2006. This section provides for interest relief on monies borrowed by companies who acquire ordinary share capital of trading or rental companies (or holding companies of such companies). The relief is also available where companies on-lend monies in certain circumstances to the types of companies referred to above or where the monies are used to pay off certain other loans.
Leasing – treatment of losses in the leasing of long-life assets
Finance Act 2006 contains measures to alleviate certain restrictions on the offset by companies of losses arising from capital allowances on the leasing of long-life plant or machinery. The measures extend the scope of income against which these losses can be offset, allowing losses on the lease of long-life plant and machinery to be offset against income from similar leasing activities.