Underpayment of Preliminary Corporation Tax: Waiver of Interest where the Underpayment Arose Solely Due to Movements in the Exchange Rate of the Functional Currency

Background

Revenue recognises that companies choosing to do business from Ireland may not have a euro currency focus to the business they transact from Ireland. This ebrief outlines the circumstances in which Revenue will waive interest charges arising where a company fails to comply with preliminary tax obligations due solely to a fluctuation in currency exchange rates.

Practice to be Followed

In the case of a company with a functional currency (within the meaning of section 402(1) TCA 1997) other than the euro, Revenue will review the circumstances presented to them by the customer and waive any charge to interest arising, where this charge arises solely by virtue of the euro value of preliminary tax payments being insufficient due to movements in the relevant exchange rate.

Conditions to be Satisfied

In order for the practice, as outlined above, to apply, the following conditions must be satisfied:

All requirements of section 958 TCA 1997 in relation to the minimum amount payable as an:

• initial instalment of preliminary tax
• final instalment of preliminary tax
• relevant initial balance or
• relevant final balance

would have been satisfied if those requirements had been applied by reference to:

• the corporation tax being a functional currency amount, that would have been due if the corporation tax were to be computed as a percentage of the functional currency profits, and
• the functional currency values that were equivalent to the euro payments actually made by the company (see next paragraph).

For the purposes of applying this condition, the functional currency values equivalent to the euro payments actually made are to be determined by reference to the representative rate of exchange (within the meaning of section 402(1) TCA 1997) for either the day on which the payment was made or the most recent day, for which such a rate was recorded, before the day of payment.

• The company makes a written claim, providing full details of both the functional currency values and euro values of all corporation tax due and corporation tax payments made by it for the accounting period and the rates of exchange used, to the Collector General's Division within one month of the notification of the interest charge. The officer to whom the claim should be directed will be named on the interest notification.

Example

• The initial amount is not 50% of the corporation tax for the previous accounting period.
• Based on euro amounts, the initial instalment is not 45% of the final liability
• Based on euro amounts, the initial and final instalments are not 90% of the final liability
• Interest would be due in respect of both instalments
• However, the initial instalment is greater than 45% (0.534 × 100/1.15 = 46%) of the final liability based on functional currency
• The initial and final instalments, taken together are greater than 90% ([0.534 + 0.523] × 100/1.15 = 92%) of the final liability based on functional currency
• The company may apply to the Collector General for a waiver of interest. The company should clearly state that the failure to comply with preliminary tax provisions is due solely to currency fluctuations

This practice will apply in respect of preliminary tax payments made after the publication of this eBrief.