76 Computation of income: application of income tax principles

Summary

In general, the amount of any income to be brought into charge to corporation tax is to be computed in accordance with income tax law and practice. The income tax law that applies is the law for the year of assessment in which the company’s accounting period ends. Income for corporation tax purposes is computed under the same Schedules and Cases as for income tax and in accordance with the relevant income tax provisions applicable. Income from each source, as so computed, and any chargeable gains (computed in accordance with section 78) are to be aggregated to give the total profits chargeable to corporation tax for an accounting period. In computing income, no deductions are allowed for distributions or for charges on income deductible from total profits by virtue of section 243. Finally, the section provides that provisions which grant exemption from income tax are to apply also to grant exemption from corporation tax.

Details

Application of income tax law

(1) Income tax principles apply in determining for corporation tax purposes what is or is not income, the amount of any income and the time at which any income arises. Exceptions to this general rule include section 77(3) which allows for the deduction of yearly interest in computing trading income, sections 716(4) and 717(6) which allow certain annuities paid to be deducted in computing certain income of insurance companies and section 845(3) which allows for the inclusion of foreign dividends and interest in computing the Irish profits of a non-resident bank, insurance company or company dealing in securities.

(2) The income tax law to be applied for corporation tax purposes is that which applies to individuals for the year of assessment in which the company’s accounting period ends. The income tax law so applied excludes any provisions applicable to individuals only.

(3) Income from each source is computed under the same Schedules and Cases as for income tax and in accordance with the relevant income tax provisions applicable to those Schedules and Cases. The income from all sources together with any chargeable gains (computed in accordance with section 78) are aggregated to arrive at the total profits for the accounting period.

(4) Income arising in any period is not (as it may be for income tax) to be measured by reference to the income arising in some other period, except in apportioning the income of a whole period to its parts.

Deductions

(5) No deduction is given in computing income for corporation tax purposes in respect of distributions or interest or other charges on income. (Relief in respect of charges on income is given against total profits under section 243.) Exceptions include section 77(3) which allows the deduction of yearly interest in computing trading profits and section 97(2)(e) which allows the deduction of interest on money borrowed for the purchase, improvement or repair of premises in computing income from rents for the purpose of a charge under Case V of Schedule D.

Application of income tax exemptions and charging rules

(6) The income tax provisions providing exemptions or imposing a charge to tax are carried over into corporation tax. Examples of exemptions so carried over are those for charities (sections 207 and 208), friendly societies (section 211), credit unions (section 212), trade unions (section 213), certain agricultural societies (section 215) and approved superannuation funds (section 774). In the case of a charge to income tax, this applies whether the amount is expressed to be income or not. An example of this is where income tax is charged by virtue of section 100 on a portion of the sale price where land is sold with a right of reconveyance.

Non-application of remittance basis

(7) The section does not carry over the remittance basis of assessment to corporation tax. That basis, which is concerned with income arising abroad to a resident person who is not domiciled in the State or who is not ordinarily resident in the State, is not appropriate in the case of companies.

Inter-relationship of taxes

(8) Where income tax provisions apply to both income tax and corporation tax, the 2 taxes are, as far as possible, treated as if they were one, so that a provision regulating a transaction between 2 individuals liable to income tax equally governs a transaction between an individual and a company for the purpose of the income tax of the individual and the corporation tax of the company.

Relevant Date: Finance Act 2021