Page 269 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 11.4 Tax Implications of Liquidating a Company

It is not common for solvent companies to be liquidated; it’s usually ones in distress where there
is little to be paid to shareholders. Sometimes, if a company’s active life has passed and there are
untaxed capital profits in the company, liquidation might be worthwhile.

1. Period of assessment: Under Section 27(7) slightly different rules apply in relation to the
length of a period of assessment when a company is being wound up. A new period of
assessment starts at the commencement of the winding up (that is, the decision to wind
up triggers the end of a period of assessment and the start of the next one). Thereafter, the
periods will end every 12 months or, if earlier, the completion of the winding up. Section

27(7)(b) clarifies that the commencement of the winding up is on:
(a) the company passing a resolution to wind up; or
(b) the presentation of a winding up petition, or equivalent under company law.

A company in liquidation has ceased to be the owner of its own assets or liabilities. Section
26(2) provides that a company in liquidation remains chargeable to corporation tax on its
profi ts.

2. Filing and payment dates: Where a company is in a winding up situation the defi nition of

a specified return date for the chargeable period, as per Section 950(1), is amended. Where
an accounting period under Section 14.8.1 above ends, the return is due within 3 months
of the period end. Remember that Section 958(3)(d) still requires that the tax liability of a
company be fully paid by the specifi ed return date, so this earlier fi ling brings with it an
earlier payment date. You will remember also that preliminary tax should be paid before
the 21st of the sixth month of the accounting period and of the penultimate month of the
accounting period Section 958(2A)(a).
!

Caution In a winding up situation, this payment rule remains unchanged even though the
decision to wind up (and thereby trigger the end of the accounting period) has not yet been
made at the new due date for the two instalments of preliminary tax.
3. Loss relief: The decision to wind up a company is often taken when the company is
incurring losses. You will recall however that the amount of loss relief available depends
on the length of the accounting period in which it was incurred.
4. Group relationships: When a liquidator is appointed, the liquidator becomes the benefi cial
owner of all assets of the company, thereby breaking any corporation tax or stamp duty
group structures. Section 616(4) has special rules for CGT groups where is specifi cally
states that a resolution or order for winding up shall not break the 75% relationship.

Notes Section 623(1) (d) also provides that where a company ceases to be a member

of a group as a result of a bone fide dissolution or winding up, it shall not result in a
crystallisation of any gains previously deferred under Section 617.
5. Close company surcharge: Distributions for the purposes of the close company provisions
in Part 13 TCA 1997 are defined in Section 130 and Section 130 (1). Therefore, a company:

(a) which is a close company; and
(b) which has undistributed income which could give rise to a surcharge; and then
(c) decides to wind up,

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