I wish to advise the Deputy that Ireland’s corporation tax regime is open and transparent and that companies are fully chargeable to corporation tax at the 12½% rate on profits arising from their trading activities here. A higher 25% rate applies in respect of investment, rental and other non-trading profits as well as profits from certain petroleum, mining or land trading activities, while capital gains are chargeable at a 30% rate. Companies are chargeable to corporation tax on their profits after taking account of allowable deductions and reliefs as provided for in the Taxes Consolidation Act 1997. Expenses that are incurred wholly and exclusively for the purposes of the trade are deductible in computing trading profits, while allowances are available for capital expenditure on plant and machinery, industrial buildings and certain intangible assets used in the trade, with such allowances treated as a deductible trading expense. Companies are chargeable on their net profits after account is taken of any losses they have incurred.
There are certain reliefs available to companies, such as group relief and double taxation relief, which are standard features of corporation tax similar to those applying in other EU and OECD countries. I am advised by the Revenue Commissioners that, based on corporation tax returns for 2010 accounting periods (the latest available), elimination of group relief and relief for double taxation would provide an estimated nominal yield of €408 million and €618 million respectively, assuming no behavioral change in response to such a measure. Clearly, however, it would not be an option to disallow double taxation relief. This would result in a double charge, imposing a disproportionate and unreasonable tax burden on companies and would also be in breach of tax treaties concluded with other countries. The availability of group relief recognizes the fact that the operations of the companies concerned are closely inter-related and that the group effectively comprises a single economic entity.
There are also specific tax reliefs for companies which are targeted at promoting investment in key areas of economic importance, including a 25% tax credit for expenditure on research and development, relief for start-up companies, accelerated allowances for investment in energy-efficient equipment, relief for investment in renewable energy and exemption of profits from commercial occupation of certain woodlands. Based on information derived from corporation tax returns for 2010 accounting periods, it is tentatively estimated that the nominal full year yield from eliminating these tax reliefs would be approximately €230 million in total, again assuming no significant behavioural change on the part of corporate taxpayers which would cause the expected increase in tax yield to fall below expectation.
I should emphasise that tax reliefs are continually monitored to ensure that they are properly focussed, provide value for money and that there are no loopholes that could be exploited for tax avoidance purposes. Certain tax reliefs, such as the exemption for patent royalty income and incentives for investment in property, have been abolished or significantly curtailed in recent years as these were not providing sufficient economic benefit relative to their Exchequer cost. Also, where a potential loophole emerges or concerns arise in relation to unintended use of a tax relief that the Revenue Commissioners are not in a position to address under existing legislation, amending legislation is introduced in the annual Finance Act to protect the tax base and ensure that the relief is not subject to any abuses.
