The Irish tax agency has announced concessions for close companies in respect of the deadline for distributions, in light of COVID-19. Most companies in Ireland are close companies. These must be resident in Ireland and be controlled by no more than five "participators".
Participators are persons who have a share of interest in the capital or income of the company. The number of participators may be higher than five in some circumstances, where the participators are also directors.
Special tax rules apply for these companies. In particular, Section 440 of the Taxes Consolidation Act, 1997, provides for an additional corporate tax charge of 20%, referred to as a "surcharge", on undistributed passive non-trading profits (investment and estate income).
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For service companies, in certain cases, a 15% surcharge may alternatively apply, in respect of income earned from rendering professional services or holding an office or employment.
The intention behind the surcharge is to prevent companies from accumulating profits as a method to reduce the participators' exposure to personal income tax.
Without the surcharge, the profits of the company could be withheld from distribution and bear tax at the company tax rate, rather than at the (higher) personal tax rates to which the profits, if distributed, would be subject to in the hands of the shareholders. The imposition of the surcharge negates those potential benefits.
Close companies are allowed up to 18 months to distribute the income for an accounting period before a surcharge is applied.
In response to COVID-19, on 13 May, 2020, the Irish Revenue announced that it would temporarily relax the rules. The tax agency has decided that where a distribution is not made within 18 months as a result of COVID-19 circumstances affecting the company, Revenue will extend the 18-month period for distributions by a further 9 months.
An application must be filed with the Irish Revenue by close companies to access the relief. The concession is available for undistributed amounts for accounting periods that end on 30 September 2018, or later. The measure, therefore, affects distributions that would be due no earlier than 31 March 2020.
Where Revenue grants a nine-month reprieve and the company fails to make the distribution within the required 21-month period, the resulting surcharge will be included in the close company's corporate tax liability for the 12-month accounting period following the surcharged accounting period, as normal. In addition, interest will apply to the late payment of the surcharge.