26 General scheme of corporation tax

Summary

The general scheme of corporation tax is that (subject to specific exceptions) the tax applies to the profits of a company wherever arising. Corporation tax is charged on the profits arising in a financial year but the tax is assessed on the company by reference to accounting periods with the amount chargeable being apportioned on a time basis, where necessary, between the financial years in which the accounting period falls.

Details

Scope of charge

(1) A company is, subject to specific exceptions, chargeable to corporation tax on all its profits (that is, its income and chargeable gains) wherever arising. Examples of specific exceptions are profits of non-resident companies other than those arising to an Irish branch or agency of such a company (section 25(1)), income which is exempt from income tax and therefore also exempt from corporation tax by virtue of section 76(6), and distributions received from Irish resident companies (section 129).

(2) The charge to corporation tax is extended to any profits accruing for the benefit of a company under a trust or arising to the company as a partner in a partnership. The charge also extends to profits arising in the winding up of a company. A company is not chargeable in respect of profits accruing to it as a trustee, except to the extent of its own beneficial interest in such profits.

Assessment by reference to accounting periods

(3) Assessments to corporation tax are made by reference to accounting periods (defined in section 27(2)). The tax, however, is charged on the profits arising in a financial year. The rate of tax, therefore, is determined by the financial year or years in which the accounting period falls. For this purpose the amount of the profits arising in an accounting period are where necessary apportioned between the financial years in which the accounting period falls. This apportionment of profits is made on a time basis by virtue of section 4(6).

(4) In the context of subsection (3), a special transitional measure was provided to deal with the case of accounting periods ending on or after 1 April, 1997 but before 1 January, 1998. In such a case, the apportionment rule in subsection (3) applies as if the period 1 January, 1996 to 31 March, 1997 (15 months) and the period 1 April, 1997 to 31 December, 1997 (9 months) were each a financial year. The effect of this treatment is to divide certain accounting periods into 2 parts instead of an unnecessary 3 for the purposes of determining the rates of tax to be applied.

Example

A company had a 12 month accounting period ending on 30 June, 1997.

The accounting period straddled the following 3 periods —

• 1 July, 1996 to 31 December, 1996 which period fell into the financial year 1996 when the corporation tax rate was 38 per cent,
• 1 January, 1997 to 31 March, 1997 when the rate of tax was also 38 per cent but the period fell into the financial year 1997, and
• 1 April, 1997 to 30 June, 1997 which also fell into the financial year 1997 but when the rate of tax was 36 per cent.

By deeming the period 1 July, 1996 to 31 March, 1997 to be a financial year it is possible to divide the accounting period into 2 for the purposes of subsection (3), as follows —

• 1 July, 1996 to 31 March, 1997 during which period the rate of corporation tax was 38 per cent, and
• 1 April, 1997 to 30 June, 1997 which period had a rate of 36 per cent,

and, for the purposes of the charge to tax, the company’s profits is apportioned as to three quarters to the first period and as to one quarter to the second period.

Relevant Date: Finance Act 2019