Written answers

Tuesday, 11 June 2013

Photo of Robert DowdsRobert Dowds (Dublin Mid West, Labour)
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143. To ask the Minister for Finance if he will provide consideration to revising the exemptions and rebates on corporation tax, such as the facility to carry forward losses and to move losses between trades; and if he will make a statement on the matter. [27117/13]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Companies are chargeable to corporation tax on the profits generated from their economic activities after taking account of allowable deductions and reliefs under the Taxes Consolidation Act 1997 (TCA). Ireland has a transparent corporation tax regime that applies a competitive 12.5% rate on a broad base, with limited provision for reliefs or exemptions. There are certain reliefs available to companies, such as loss relief and double taxation relief, which are standard features of corporate tax systems in EU and OECD countries. There are also a small number of targeted reliefs that are aimed at promoting investment, innovation and employment in the economy, including a 25% tax credit for expenditure on research and development and a 3-year tax relief for start-up companies creating new jobs. Regarding losses, Ireland follows the international norm whereby losses incurred in the course of a business are taken into account in arriving at the appropriate amount of tax that a company should bear. The availability of relief for losses incurred in a business is in recognition of the fact that a business cycle runs over several years and that it would be unbalanced and unreasonable to tax profits in one year and not allow losses in another. The TCA provides that unrelieved trading losses of a company for an accounting period may be carried forward for offset against trading income of the same trade in future accounting periods. Trading losses carried forward by a company may only be offset against trading income of the same trade and not against any other trading income or profits of the company.

The Deputy may wish to note that the TCA contains a number of measures to counter the transfer of losses from one company to another for tax avoidance purposes, often referred to as “loss buying”. For example, Section 400 of the TCA provides that, where a loss-making trade is transferred from one company to another company in a group situation, the transferred trade is treated as a separate trade distinct from any other trading activities carried on by the company acquiring the trade. Any unused losses forward of the transferred trade are only allowable against profits attributable to that separate trade. This ensures that trading losses of the transferred trade are ring-fenced to that trade and may not be offset against other trading income or profits of the acquiring company.

In addition, Section 401 of the TCA provides that where, within a period of 3 years, there is both a change of ownership of a company and a major change in the nature or conduct of the trade carried on by the company (e.g. major change in products, services, customers or markets), trading losses incurred by the company before the change of ownership are not allowable against trading income of the company after the change of ownership.

The effect of these provisions to counter “loss buying” is to restrict the scope for utilising losses for tax avoidance purposes by combining loss-making and profitable business activities. These provisions are kept under review and, if any loopholes or weaknesses that pose a tax risk are identified, I will not hesitate to introduce appropriate legislative amendments.

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