Dáil Éireann Debate, Thursday - 15 November 2012
61. Deputy Richard Boyd Barrett asked the Minister for Finance if he will consider raising the effective corporate tax rate to 12.5% and increasing the nominal corporate tax rate to 15%; and if he will make a statement on the matter. [50525/12]
View answerThere are different ways of measuring the effective rate of corporation tax depending on the variables that are used. As there is no such single internationally agreed methodology to calculate the effective rate of corporation tax, there is no basis upon which to calculate the current ‘effective rate’ of corporate tax in Ireland without being potentially misleading. Therefore, neither I, nor my Department, would be in a position to introduce an ‘effective rate’ in Ireland in the way the Deputy has suggested.
Regarding the headline corporate tax rate, the Taoiseach, myself and other members of the Government have repeatedly expressed the Government’s commitment to the retention of the 12.5% rate. In terms of an increase in the 12.5% rate, estimating the size of the behavioural effects is difficult but they are likely to be relatively significant. An OECD multi-country study found that a 1% increase in the corporate tax rate reduces inward investment by 3.7% on average. On this basis, it would take only a 2.5% increase in the rate (to 15%) to decrease Ireland’s inward investment by nearly 10%. This assumes the average applies across the board but in fact the effect is likely to be more extreme for Ireland.
The major importance of maintaining the standard 12.5% rate of corporation tax to Ireland’s international competitive position in the current climate must also be borne in mind. Ireland, like other smaller member states, is geographically and historically a peripheral country in Europe. A low corporate tax rate is a tool to address the economic limitations that come with being a peripheral country, as compared to larger core countries. Ireland’s low corporation tax rate plays an important role in attracting foreign direct investment to Ireland and thereby increasing employment here. Recent research by the OECD also points to the importance of low corporate tax rates to encourage growth.
Further, it would be difficult to justify such a move in the context of Ireland’s stated position that we will not change our corporation tax strategy. Even a marginal change would undermine both our long held stance on this issue and the certainty of business, domestic and international, in our resolve to maintain that position.
