On 31st May 2022, the Revenue published a Guidance Note laying down the details of the temporary measure allowing entities with excess capital allowances, as a result of losses suffered during the COVID-19 pandemic, to be surrendered to other group entities to be utilized in basis year 2021 (year of assessment 2022). Such measure has been earlier announced by the Minister for Finance and Employment in the last Budget Speech.
The measure is open to entities (‘companies’) which form part of a group, as defined in the Income Tax Act, provided that the surrendering or the claimant company have benefitted from the COVID-19 Tax Deferral Scheme.
The balances available for surrender are those unabsorbed capital allowances (also known as ‘wear and tear allowances’ or ‘tax depreciation’), including balancing allowances, arising in basis years 2020 and 2021 - unabsorbed allowances brought forward from basis year 2019 or previous years are not eligible for surrender.
The surrendered amounts can be claimed by the claimant company as a deduction against all of its taxable income, irrespective of source, provided that the deduction does not exceed its chargeable income for basis year 2021. The deductions are further capped at Eur1,000,000 per group of companies. The surrender and the claim shall be made through the companies’ tax returns for the same basis year 2021, which is due for filing in 2022.
It should be noted that although the tax return allows an election to be made for this measure, the legal notice which regulates and provides the legal basis for the group deductions referred to in the Guidance Note has not yet been published. On its website, the Revenue made reference to ‘Group Deductions (Income Tax) Rules, 2022, which will be issued in due course’. Thus, we expect such Rules to be issued in the coming weeks*.
*Update: The legal notice (number 205 of 2022) entitled Group Deductions (Income Tax) Rules, 2022, has been published on 15th July 2022.