Losses for the purpose of Ireland income tax are defined as the negative amount that is arrived at after adjusting for any non-taxable income, tax-exempt income and other deductions from total worldwide income subject to Ireland corporate income tax in a given tax year.
Current year losses can be offset against trading income (taxed at 12.5%) and foreign dividends (covered in Sec. 6.6.) of the same or preceding period. The excess is converted in value and may be used to offset passive income (taxed at 25%) of the same period. Any remaining balance is carried forward indefinitely, but may only be offset against future trading income.
The use of losses to offset taxable income in the current or preceding period can be claimed within two years from the end of the accounting period in which the loss was incurred.
This allows foreign withholding taxes and underlying taxes (taxes on profits out of which dividends have been paid) to effectively be pooled together and used to offset Irish tax on the dividends. However, excess tax on foreign dividends liable at a rate of 12.5% cannot be used against those liable at the 25% rate. These tax credits need not be used in the year in which the dividend is received, but can be carried forward indefinitely for offset against Irish tax on future foreign dividends.
As such, effective for tax years starting on or after 1 January 2014, the “onshore pooling” of foreign tax credits with respect to interest, dividends and royalties may no longer generate a tax loss in Ireland. Ireland grants a generous unilateral relief for foreign tax. Ireland’s leasing companies may also obtain relief for foreign tax, as unrelieved foreign tax may be carried forward and used against the same type of easing income of any subsequent accounting period.
Losses may be surrendered within a consolidated group. See Sec. 5.3. Under the prevailing rules, losses can be surrendered between companies forming a tax group for loss purposes. Two or more companies form a loss group if one company is a 75% subsidiary of the other company or both companies are 75% subsidiaries of a third company and all members of the group are resident in an EU or a tax treaty country. If the parent company of the group is not resident in an EU or tax treaty partner country, it may still qualify as a group member if its shares are quoted on a recognized stock exchange. Finance (No.2) Act 2013 clarified that a subsidiary of such a quoted company may form part of the group where it is held indirectly instead of directly.
When one company takes over the trade or business of another, the right to carry losses forward is subject to a test of continuity of ownership. The test requires that 75% or more of the share of the trade or business be held by the same person(s).
If a reorganization results in a change of ownership, the right to unutilized losses will be denied if there is a major change in the trade or business of the company originally entitled to the use of the losses, or if the company was near dormant at the time of the change in ownership.
Review of M&A tax consequences covered in Sec. 11.
Capital losses can be used to offset capital gains in the same year of assessment. Unutilized capital losses can be carried forward to offset future gains, but may not be carried back. According to the July 2015 CGT1 Guide to Capital Gains Tax, inflation relief cannot be used to convert a monetary gain into an allowable loss or to increase a monetary loss.
When a company ceases a trade or business, losses incurred in the last 12 months of that trade or business may be carried back three years and used to offset profits of the same trade or business.