Section 440 of the Taxes Consolidation Act 1997 provides for an additional charge of corporation tax on close companies at the rate of 20 per cent of the excess of the aggregate of the distributable investment income and the distributable estate income over the distributions made for an accounting period.
A close company is defined as a company under the control of 5 or fewer participators or under the control of participators who are directors. Some companies are excluded from this definition such as:
1. a non-resident company,
2. a registered industrial and provident society,
3. a building society within the meaning of the Building Societies Acts, 1874 to 1989,
4. a company controlled by or on behalf of the State,
5. a company controlled by or on behalf of a Member State of the European Communities or the government of a territory with which Ireland has a tax treaty, and
6. certain companies with quoted shares.
Exemptions to the surcharge
There is no surcharge where the excess is €2,000 or less and marginal relief is provided where the excess is slightly more. Where a company has associated companies, the €2,000 limit is divided by the number of associated companies, including the company itself. An associated company must be included for the purposes of the surcharge even if it was an associated company for part only of the accounting period concerned.
The amount on which the surcharge is made cannot exceed the accumulated undistributed income at the end of the accounting period after taking account of any transfer to capital reserves or bonus issues or any other transaction occurring on or after 27 November 1975 which would have the effect of artificially reducing such accumulated income. Where a company is subject to any restriction imposed by law as regards the making of distributions, regard shall be had to this restriction in determining the amount of income on which a surcharge shall be imposed under section 440.