Revenue Note for Guidance

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Revenue Note for Guidance

694 Exploration expenditure incurred by certain companies


This section provides for the granting of an exploration allowance against the profits of a petroleum trade carried on by one company in respect of exploration expenditure incurred by another company, where one company is a wholly owned subsidiary of the other company or both are wholly owned subsidiaries of a third company.


(1) The provision ties the transferable exploration expenditure into section 693 by ensuring that it is the same type of unreimbursed expenditure that may be allowed under subsection (1) of that section. The provision also specifies the type of group structure required and provides for an election by the exploring company to transfer to another company so much of its exploration expenditure as it specifies. The expenditure so transferred is deemed to have been incurred by the transferee.

(2)(a) Transferred expenditure is to be treated as incurred by the transferee at the time it was actually incurred (this prevents old abortive exploration expenditure being used by the transferee any later than it could have been used by the exploration company).

(2)(b) A transferee company which was not in existence when the expenditure was incurred will be deemed to have been so in existence.

(2)(c) The exploration expenditure deemed to have been incurred by a transferee company is —

  • also deemed to have been incurred for the purpose of any petroleum trade carried on by it, and
  • deemed not to have been met by the exploration company (to prevent operation of the provision in brackets in section 693(1) which denies an allowance for exploration expenditure which has been met by a person other than the claimant).

(3) & (4) Provision is made to prevent duplication of allowances.

(5) A company is a wholly-owned subsidiary of another company if all its ordinary share capital is owned directly or indirectly by that other company. The provision adapts rules set out in paragraph 6 of Schedule 9 for the purposes of determining indirect ownership of shares.

Relevant Date: Finance Act 2021