The rules governing the set-off of losses for corporation tax purposes have been amended. The good news is that the time limit has been extended. The bad news is that losses are no longer always set off against the full amount of profit.
Unlimited forward
A loss for a financial year is set off against:
- the profit for the previous financial year (which remains unchanged);
- the profits from all subsequent financial years (which were only the next six financial years).
That is a justified adjustment. After all, the aim is to tax the total profit over the entire lifetime of the company.
Up to 50% of the profit
This restriction on loss set-off applies where profits exceed €1,000,000.
For example, if a loss of €2,500,000 is incurred in 2021 and a profit of €2,500,000 is made in 2022, the following amount will be set off in 2022: €1,750,000. Namely: €1,000,000 plus 50% of €1,500,000. Corporation tax must be paid on €750,000 in 2022.
Transitional arrangement
The new rules apply to the set-off of all losses that are still eligible for set-off as at 31 December 2021. These are losses incurred in 2013 and subsequent years.
Losses from 2011 may be carried forward for set-off until the end of 2020 (at that time, the period for carrying forward losses was still nine years). Losses from 2012 may be carried forward for set-off until the end of 2021.