Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

21A Higher rate of corporation tax

Summary

This section provides that a higher rate of corporation tax, namely, 25 per cent, is to be charged for the financial year 2000 and subsequent financial years on certain profits of companies. The profits in question are income chargeable under the following Cases of Schedule D —

  • Case III (for example, interest not taxed at source, interest on Government securities, foreign income),
  • Case IV (for example, royalties, miscellaneous income), and
  • Case V (that is, rental income from land and buildings in the State).

Also included are profits from working scheduled minerals, mineral compounds or mineral substances, working minerals, petroleum activities, and dealing in or developing land other than profits from construction operations (which is taxable at the standard corporation tax rate) and the disposal of “residential development land” (which under section 644B is taxable at an effective rate of 20 per cent). However, the higher rate of corporation tax does not apply to any part of a company’s income which previously qualified for “manufacturing relief” (that is, income qualifying for taxation at an effective rate of 10 per cent).

Details

Definitions

(1) “construction operations” are any of the operations referred to in the definition of that term in section 530(1) (which provides definitions for the scheme of tax deduction from payments made to subcontractors in the construction, forestry and meat processing industries), other than operations which are part of, or related to —

  • the drilling for or extraction of minerals, oil, natural gas, or
  • the exploration for, or exploitation of, natural resources.

“dealing in or developing land” is to be construed in accordance with Chapter 1 of Part 22 which contains special provisions relating to the taxation of profits and gains from dealing in or developing land. In particular refer to the guidance notes on section 640 for elaboration on the construction of this term.

“excepted operations” is as any one or more of the following activities, namely, dealing in or developing land, excluding construction operations; working scheduled minerals, mineral compounds or mineral substances; working minerals; and petroleum activities.

“excepted trade” is a trade which consists only of trading operations or activities which are excepted operations. In the case of a trade consisting partly of excepted operations and partly of other operations or activities, the part of the trade consisting of excepted operations, which is treated as a separate trade under subsection (2), is also an excepted trade.

“exempt development” is a development within Class 1 of Part 1 of the Second Schedule to the Local Government Planning and Development Regulations, 1994 which complies with the conditions and limitations related to that class and which are set out in the Regulations. This consists of the extension of a dwelling house by the construction or erection of an extension to the rear of the dwelling house or by the conversion for use as part of the dwelling house of any garage, store, shed or other similar structure attached to the rear or side of the dwelling house. The conditions are that the total floor area of any such extension cannot exceed 23 square metres.

“land” includes the foreshore and land covered by water, while “dry land” is land not permanently covered by water.

“minerals” is based on the definition of that term in section 3 of the Minerals Development Act, 1940, while “petroleum” has the same meaning as in section 2(1) of the Petroleum and Other Minerals Development Act, 1960.

“petroleum activities”, “petroleum exploration activities”, “petroleum extraction activities” and “petroleum rights” are based on definitions of similar terms in section 684(1) which defines terms for the purposes of the special taxation regime for Irish oil and gas exploration and production set out in Chapter 2 of Part 24.

“qualifying land” means land—

  • on which a building or structure has been constructed by or for the company, and
  • which has been fully developed by the company.

Land is regarded as fully developed by a company at the time of the disposal if, on the basis of a snapshot of the position at that time, it is reasonable to expect that there will be no further development of the land over the next 20 years except for any non-material development which the purchaser of the building might carry out for that person’s use or enjoyment of the building concerned.

Such a development would not be regarded as material if the development is—

  • exempt from the requirement to seek planning permission (see definition of “exempt development”), or
  • a development which results in an increase in floor area of the building of no more than 20 per cent.

“working”, in relation to minerals, is based on the definition of that term in section 2(1) of the Minerals Development Act, 1979.

Deemed separate trades

(2) If a trade consists partly of excepted operations and partly of other activities, each part is treated as a separate trade for the purposes of the section, and a just and reasonable apportionment of receipts and expenses is to be made between the two parts.

Charge to the higher rate

(3)(a) Corporation tax is charged at the rate of 25 per cent for the financial year 2000 and subsequent financial years on the profits of companies which consist of income chargeable under Case III, IV or V of Schedule D or of income of an excepted trade.

However, the 25 per cent rate does not apply to foreign dividends chargeable under Case III which by virtue of section 21B are chargeable to tax at the 12½ per cent rate.

(3)(b) As a general rule charges on income are not allowed in calculating income from a particular source, but are deducted from the profits of a company. If this rule were to be applied in the case of a company with an excepted trade, the amount charged to tax at the higher rate would be excessive. Accordingly, the general rule is modified so that charges on income paid wholly and exclusively for the purposes of an excepted trade which is taxed at the higher rate are to be deducted in calculating the income from that trade.

Exclusion of income from “manufacturing activities” and certain “insurance business” from higher rate charge

(4) The 25 per cent rate does not apply to the profits of a company for any accounting period to the extent that those profits consist of income of trades of non-life insurance, reinsurance and life business (in so far as it is attributable to shareholders of the company).

Exception for work carried out in financial year 2000

(5) For the financial year 2000 construction operations do not include demolition, service installation and other preparatory work (other than laying foundations) to residential development. The effect of this is that income from such activities does come within the scope of the 25 per cent rate for the year 2000, but the tax concerned may then be reduced to a 20 per cent effective rate.

Relevant Date: Finance Act 2021