Tax Controversy

Key measures for tax controversy

Changes are being introduced in relation to preliminary corporation tax rules for companies subject to corporation tax. Where the amount of preliminary corporation tax paid is insufficient, interest accrues on the underpayment under Section 1080 Taxes Consolidation Act 1997 at the daily rate of interest of 0.0219% (equivalent to 8% per annum). The new Budget measures are aimed at reducing uncertainty and the administrative burden while also improving flexibility for companies when it comes to meeting their preliminary tax obligations. These measures will also serve to reduce the exposure to interest for the late payment of tax. The new measures are:

1. Preliminary tax requirements are considered satisfied where at least 80% of the current year’s liability has been paid by the final preliminary tax instalment date and a top-up payment to reach 100% of the liability is made within four months of the end of the accounting period.
2. Removal of a 45% deeming provision, such that an underpayment of the second instalment of preliminary tax does not result in a deemed underpayment of the first instalment, where the first instalment payment was not of an amount at least equal to 50% of the prior year’s liability.
3. An increase in the small company threshold from €200,000 to €350,000. This threshold refers to the corporation tax liability of the prior year, up to which a company is considered to be a ‘small company’ and therefore subject to less onerous preliminary tax requirements.

Who will be affected and when?

All corporate entities registered for corporation tax in Ireland are impacted by these measures.

What now?

All corporate entities should assess their preliminary tax status (small or large) on an annual basis arising from the increased threshold and also the new top rule. Companies should be aware of the appropriate rule set each year to ensure they meet their preliminary tax obligations and hence avoid the exposure to interest.

Deloitte's view on Budget 2027 measures

Preliminary corporation tax is the advance payment of corporation tax which a company that is assessable to corporate tax in Ireland must make during its accounting period, ahead of its final corporation tax liability being settled when the Form CT1 return is filed and the balance of tax is paid. In many instances ‘best estimates’ are used by companies when considering their preliminary tax obligations as the final liability to tax for the period is not known at the point in time when the preliminary tax payment(s) is due.  Where it transpires the ‘best estimate’ is not sufficient (or any payment if not an estimate) in meeting the appropriate preliminary tax obligations the company is exposed to interest, notwithstanding it may have paid its tax liability in full by the due date of filing their corporation tax return.

The Collector General’s office regularly assesses preliminary tax compliance, which in turn identifies instances where there is a breach of the rules. In these situations, they then pursue the company for statutory interest. In our experiences they do not mitigate the interest charge, irrespective of the circumstances giving rise to the matter. In many instances the absence of final financial statements lends itself to preliminary tax issues.

The Budget changes are welcomed as they reduced the exposure to interest in certain instances and push more companies into the more administratively friendly ‘small’ company preliminary tax rule set.