Revenue Note for Guidance

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Revenue Note for Guidance

679 Exploration expenditure


Where a company is only exploring for mineral deposits and is not working a qualifying mine, it is not carrying on a trade for tax purposes. Thus, without special provision, it could not obtain relief for exploration expenditure against whatever profits it may have, for example, income arising on the investment of the funds financing the exploration. The purpose of this section is to allow the set-off for tax purposes of the exploration expenditure of such a company against its profits, even where the company does not work a qualifying mine.



(1) The definition of “exploration company” requires that so long as a company is to be classified as an exploration company its chief business must be exploration. The definition of “exploring for scheduled minerals” is based on the definition of “exploration expenditure” in section 672 and does not include exploring outside the State for minerals.

Deemed trade

(2) Where a company is an exploration company but does not work a qualifying mine, it will nevertheless be entitled to allowances for its expenditure as if it were carrying on a trade. The allowances in question are —

  • a 100 per cent write-off of exploration expenditure,
  • a further 20 per cent investment allowance in respect of such expenditure,
  • normal capital allowances in respect of expenditure on plant and machinery, and
  • a further 20 per cent investment allowance in respect of such expenditure on new machinery or plant.

The provisions for which an exploration company is deemed to be carrying on a mining trade, etc are listed as sections 673, 674(3), 677 and 678. Section 674(3) is included in this list to eliminate any doubt that is might preclude a deduction under section 673.

The company is deemed to come within the charge to corporation tax in respect of this deemed trade when it first incurs capital expenditure (including such expenditure incurred on the provision of plant and machinery) for the purposes of exploring for scheduled minerals.

The capital expenditure incurred on the provision of plant and machinery (mentioned in parentheses in paragraph (c) of the subsection) is to be treated as incurred for the purposes of the trade the company is deemed to be carrying on.

The results of the deeming provisions (i) to (iii) are set out at the end of the subsection by way of clarification or exposition of the link with section 307(2). That clarification is essentially superfluous to the subsection but is intended to indicate how a claim under the provision can give rise to a trading loss (referred to at the beginning of subsection (3)) as a result of an excess of trading expenses over trading receipts (including “nil” receipts).

Loss relief

(3)(a) Full loss relief is provided for exploration expenditure against all of an exploration company’s profits of whatever description.

The losses of an exploration company may be set off against the income and gains of that company whether they are income and gains of —

  • the same accounting period,
  • the previous accounting period, or
  • any succeeding accounting period so long as the company continues to be an exploration company.

If a company ceases carrying on business while it is an exploration company, its final year’s loss may be set off against any income and gains of the company of the previous 3 years.

(3)(b) There is a prohibition on the surrender of those losses to other companies by way of group relief. (Group relief requires a 75 per cent shareholding relationship.) Exploration companies are able to surrender tax relief to 100 per cent subsidiary or parent companies under section 675.

If a company begins to actually work a qualifying mine, it can carry forward unused losses of the trade it was previously deemed to carry on – but only against the trading income from actually working the mine and not against all the profits (of whatever description) of the company. Hence the introductory phrase of paragraph (b) “subject to subsection (4)(b)(ii)”.

Balancing adjustments

(4)(a) The balancing adjustment provision of section 670 applies as it does in the case of companies which are actually mining – and not merely deemed to be mining. The sale of assets leading to a recovery of exploration expenditure in respect of which allowances have been given may result in a withdrawal, by way of balancing charge, of some of those allowances. The company will be deemed to have continued to be carrying on the trade of working the mine only “in the event of such a sale”, that is, only for the purposes of the balancing adjustment required as a result of a sale.

Company begins to actually work a mine

(4)(b) If a company begins to actually work a mine, it is allowed to carry forward losses against mining income (but not against any other profits), and to continue writing down expenditure on plant and machinery, as if there were no change in its trade.

(4)(c) There will, however, be no carry-forward of losses if the ownership of the company changes. In the absence of such a provision, paragraph (b) would present a ready means of avoiding balancing charges on the sale of assets representing exploration expenditure. Shares in the exploration company would be sold instead of the company’s assets.

(4)(d) Schedule 9 applies for the purposes of defining change of ownership.


(5)(a) There is a prohibition of any double deduction in respect of expenditure.

(5)(b) Provision is made to prevent any repayment of Deposit Interest Retention Tax (DIRT) by virtue of relief under this section.

Relevant Date: Finance Act 2019