Ireland has introduced a temporary scheme allowing companies to claim back corporate tax paid last year against losses anticipated this year.
According to the Government, this scheme is intended to boost cash flow for companies that became loss-making as a result of the public health measures used to restrict the spread of COVID-19.In summary, the measure allows companies to estimate their trading losses this year and immediately carry back up to 50% of these losses against profits made in the preceding accounting period.
Normally, claims for carry-back loss relief can only be made after the end of the accounting period in which the loss occurred and following the filing of a tax return for that period. The new measure allows companies to expedite claims for this relief, through an "interim claim".
Losses may be carried back under this accelerated procedure if they are incurred in an accounting period that covers part or all of the period from 1 March to 31 December 2020. This means that accounting periods ending in 2020 or 2021 could be eligible for accelerated loss relief.
Although two accounting periods may fall within the March to December 2020 date range, such as for instance for a company whose accounting period ends in July 2020, a claim may generally only be made for one accounting period. This is because the company must have made a profit in the prior accounting period to claim a refund of tax, but it will have made two successive losses, in 2019/20 and 2020/21. A claim will therefore generally only be possible only in respect of losses in 2019/20, against tax paid on profits in 2018/19.
The legislation allows companies to submit claims for losses based on a "reasonable best estimate".
According to Revenue guidance, a company will be regarded as having made a best estimate where a genuine attempt has been made to calculate the loss based on all the information available to the company at the time of the claim.
When Can Claims Be Made?
An interim claim may be made four months after the beginning of the specified accounting period and up to five months after the end of the period.
A company will be able to revise (an unlimited number of times) its interim claim as the accounting period progresses (up to five months after its end), including increasing its interim claim where the company estimates that its loss for the specified accounting period will be greater than the amount previously expected.
A claim is made through a revision to the prior year's corporate tax return (CT1). No supporting documentation is required to be submitted with the return. However, Revenue may request documentation to substantiate the claim at a later date.