Corporation Tax (CT): Payments Groups and Loss Groups Flashcards
When are companies considered members of a group for Corporation Tax Group Loss Relief purposes? (3 considerations)
- Ownership Threshold: Companies are considered members of a group when one company holds at least 75% of the ordinary share capital of another, or when a parent company holds at least 75% of the ordinary share capital directly or indirectly in its subsidiary companies.
- Voting Rights and Profit Entitlement: Additionally, the parent company must have more than 75% of voting power in the subsidiary and be entitled to receive more than 75% of the profits available for distribution to equity holders and more than 75% of the assets available for distribution on a winding up.
- Residency Requirements: Generally, all companies involved must be tax resident in the same country unless bilateral tax treaties allow for cross-border group relief.
What is a Corporation Tax Group?
A Corporation Tax Group consists of related companies that can consolidate their tax filings and share tax attributes such as losses, credits, or gains.
This grouping is usually based on common ownership and control, such as one company holding a significant percentage of another’s shares.
The primary advantage is tax efficiency through combined tax reporting and attribute sharing among the group members.
What is a Payments Group?
A Payments Group is a structure within a MNE aimed at managing and optimizing the handling of payments, particularly across borders.
It focuses on achieving tax efficiencies related to withholding taxes and cross-border payment compliance, leveraging favorable tax treaties.
The main goal is to manage cash flows in a tax-efficient manner and to ensure regulatory compliance in various jurisdictions.
What is the purpose of Section 396B of the Taxes Consolidation Act 1997?
Section 396B provides marginal relief for companies, helping small companies with lower profits by reducing their corporation tax liability through a sliding scale of relief.
Who is eligible for marginal relief under Section 396B?
Marginal relief under Section 396B is available to companies with taxable profits that fall below a certain threshold, where the relief decreases as profits increase and phases out completely at higher profit levels.
How is the tax relief calculated under Section 396B?
Companies must calculate their tax liability at the standard corporation tax rate and then apply a marginal relief formula. They pay the lower of the tax calculated with or without the relief.
What is the impact of Section 396B on small businesses?
Section 396B reduces the effective tax rate for smaller companies, allowing them to retain more earnings and support business sustainability. It aims to make the corporate tax burden more proportional to their ability to pay.
What types of payments qualify for Payments Relief under the deduction of income tax? (3 payments)
Payments made under the deduction of income tax include:
1. Annual Payments 2. Yearly Interest 3. Patent Royalties
What is required of the payer under Payments Relief?
The payer is required to:
1. Deduct income tax at the standard rate of 20%. 2. Pay the deducted amount to Revenue as part of the Corporation Tax liability (CT+IT).
What are the tax implications for the recipient under Payments Relief?
The recipient:
1. Receives the net amount. 2. Is taxed on the gross amount. 3. Claims a tax credit by reducing their Corporation Tax liability (CT-IT).
Under what conditions can payments be made gross without deducting income tax?
When a payment is made gross, the entire payment amount is transferred to the recipient without subtracting taxes such as income tax, social security contributions, or other statutory deductions.
Payments may be made gross if:
1. A 51% relationship exists (direct or indirect) between payer and payee (i.e., > 50% - 50.01% suffices). 2. The payer and payee are both resident in an EEA Member State with a Double Taxation Agreement (DTA) or an EU Member State or the UK. 3. If the recipient is not resident in Ireland, the receipt must be subject to tax in the other country (certification required). 4. In determining the 51% relationship, do not utilize shareholding in companies not resident in: • An EU Member State, or • An EEA state where no tax treaty with Ireland exists, or • Share-dealing companies.
How can a company obtain relief from Corporation Tax (CT) for trading losses, and what are the steps involved? (5 steps)
A company that incurs a trading loss (Case I or II) can obtain relief from CT as follows:
1. By setoff against trading income in the same accounting period. 2. By setoff in the immediately preceding accounting period of the same length. 3. By setoff against non-trading income on a value basis (VB) in the same accounting period. 4. By setoff on a VB in the immediately preceding accounting period of the same length. 5. Any unused trading losses can be carried forward against profits of the same trade in future periods.
These steps are claimed in that order. If no loss relief is claimed, the loss is carried forward (Step 5). The time limit for a claim is 2 years from the end of the accounting period in which the loss occurs. Note: CAP 2 will not include number-crunching loss relief questions from CAP 1.
How does Group Loss Relief work for companies, and what are the conditions?
A “profit maker” can “take” relief for losses incurred in the same accounting period from other members of a loss group of companies. There is no carry back or carry forward of losses under Group Loss Relief; the accounting periods must match partly or wholly.
What are the steps for a “profit maker” to take relief under Group Loss Relief? (2 steps)
A “profit maker” can “take” relief by deduction:
1. Against trading income (step 1) 2. On a value basis (step 2)
Remember the 5 steps for a single company and the 2 steps for a Group of companies. Carry back or carry forward is possible under loss relief within a single company (refer to CAP 1).
What are the time limit and treatment rules for claiming Group Loss Relief?
• The time limit for claiming Group Loss Relief is 2 years from the end of the accounting period in which the loss is incurred.
• Any payment from the profit maker to the loss maker, as compensation for using the loss, is ignored for tax purposes.
• Different types of losses are subject to different rules.
What types of losses can be surrendered under Group Loss Relief? (4 types)
The types of losses that can be surrendered are:
1. Trading losses (restrictions apply) 2. Excess charges (trade and non-trade) 3. Excess management expenses (Investment Companies) 4. Excess Case V Capital Allowances
What types of losses cannot be surrendered under Group Loss Relief? (5 types)
The types of losses that cannot be surrendered are:
1. Capital Losses 2. Case III/IV Losses 3. Case V Losses 4. Losses carried forward from a previous accounting period 5. Losses carried back from a subsequent accounting period
What are the requirements for a Qualifying Loss Group to qualify for group relief for losses?
To qualify for group relief for losses, both the claimant company (profit maker) and the surrendering company (loss maker) must be members of the same loss group [S 412 TCA 1997].
What are the criteria for two companies to be deemed members of a Qualifying Loss Group for group relief?
Two companies are deemed members of a loss group if:
• One company is a 75% subsidiary of the other, or • Both are 75% subsidiaries of a third company.
The parent must be entitled to 75% of:
• The profits on distribution, and • The assets on winding-up.
All issued share capital is considered except capital with a dividend at a fixed rate but with no other rights to a share in the profits (e.g., participating preference shares included as ordinary share capital).
