Revenue Note for Guidance

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Revenue Note for Guidance


Charges on income for corporation tax purposes


This Chapter provides relief from corporation tax for charges on income (section 243), places a ringfence on the deduction of charges incurred by a company in an activity which is taxable at the standard rate of corporation tax (section 243A) and provides relief for certain charges on income on a value basis (section 243B).

243 Allowance of charges on income


This section provides for relief from corporation tax in respect of annuities and other annual payments, patent royalties, rents and other similar payments, and, to a limited extent, interest, paid in connection with a trade. The principle underlying the section is that these payments (which in the hands of the recipient are in the nature of “pure income” receipts) known as “charges on income” are to be set against the total profits of the company and not against the particular source of income with which the payment is connected. The section incorporates the general prohibition, except for very limited exceptions, on the allowance of interest as a charge.


Charges on income

(1),(1A) & (4) The payments to be deducted as charges on income are —

  • yearly interest (but see below), annuities or other annual payments,
  • short interest payable to a bank, building society, stockbroker or discount house carrying on such a bona fide business in the EU or the United Kingdom,
  • other similar type payments mentioned in section 104 (these include rent and similar payments paid in respect of premises (including land) or easements used in connection with mining, quarrying, etc),
  • patent royalties referred to in section 237(2).

Short interest payable to a bank, stockbroker or discount house is regarded as paid on the date it is debited to the company’s account in the books of the bank (or building society), etc. It is to be noted that subsection (7) prohibits interest being treated as a charge on income except in very limited circumstances.

Excluded from the concept of a “charge on income” are any payment in the nature of a dividend or distribution of profits or any payment which is deductible in computing profits for corporation tax purposes (for example, yearly interest paid to a bank (including a building society) in the State and incurred wholly and exclusively for the purposes of a trade).

The reference in subsection (1) to “other express exceptions” is designed to take account of such provisions as section 846(2)(b) which excludes from the definition of charges on income interest on money borrowed by a non-resident financial concern for the purchase of tax-free securities (within the meaning of section 845).

Deduction for charges paid

(2) Charges on income are allowed as deductions against total profits for corporation tax purposes. The charges must be paid in the accounting period out of the profits brought into charge to corporation tax for that accounting period and are to be allowed against the total profits as reduced by any other relief (for example, relief for losses) except group relief in accordance with section 420.


A company makes up its accounts for the year ending 31 December, 2002.

The accounts and computations show —

Trade A



Trade B



Rental income


Royalties paid


The assessments to corporation tax are —

Trade A



Trade B



Rental income


Profits of accounting period


Trade B – loss relief claimed under section 396(2)


Profits as reduced by relief other than charges on income and group relief


Less charges on income (that is, royalties paid)




Tax at 16%



If the company is entitled to group relief the amount in respect of which the relief is due will be deducted from the sum of €11,000.

Deduction for charges paid before trade set up and commenced

(3) In the case of a trade set up and commenced after 21 January, 1997, charges on income paid by a company before it sets up and commences to trade are, where those charges are paid wholly and exclusively for the purpose of the trade, treated as paid at the time of the commencement of the trade and, consequently, are allowable deductions under this section. Charges on income qualifying for relief under this provision do not qualify for relief under any other provision of the Tax Acts.

Charges paid to non-residents

(5) Charges on income paid to non-residents are deductible from profits in the same way as if they had been paid to a company resident in the State. In such cases the general requirement that the payment must be made under deduction of income tax is, in particular circumstances, subject to being overruled by a double taxation agreement. Accordingly, to cater for such situations, the paying company may be authorised by the Revenue to pay without deduction of income tax (that is, pay gross) or deduct income tax at a reduced rate. Where this happens, the company is not to be denied a deduction from its profits for such a payment. Companies can also receive interest paid gross on an advance from a bank carrying on a bona fide banking business in the State (by virtue of section 246(3)(a)), and interest paid gross on quoted eurobonds (by virtue of section 64(2)). In addition, a company is not denied a deduction from its profits in cases where an exemption from withholding tax is provided under the Interest and Royalties Directive in section 267I.


(6) A deduction is prohibited if the payment is charged to capital or is not ultimately borne by the company. A deduction is also prohibited if the payment is not paid under a liability incurred for valuable and sufficient consideration. In the case of a non-resident company, there is the additional condition that the liability must be incurred for the purposes of a trade carried on in the State through a branch or agency. However, royalty payments that are revenue in nature are not denied a deduction solely because they are included in the cost of an asset under International Financial Reporting Standards (IFRS) treatment.

Treatment of interest

(7) & (8) In general, interest is not to be treated as a charge on income. However, excluded from this general prohibition is interest on loans applied in acquiring a material interest in certain companies, mainly trading companies and companies whose income consists wholly or mainly of income chargeable under Case V of Schedule D (see section 247).

(9) The provisions of section 249, which restrict relief for interest in a case where a person recovers capital from a company in which that person has acquired an interest financed by borrowed moneys and does not apply the recovered capital in repaying the borrowed moneys, are applied for the purposes of restricting interest treated as a charge on income under subsection (8).

Relevant Date: Finance Act 2021