Dáil Éireann Debate, Thursday - 28 February 2013
32. Deputy Richard Boyd Barrett asked the Minister for Finance if, given EUROSTAT figures that put Ireland's implicit tax rate at 6.8%, he will consider establishing a minimum effective corporation tax rate of 12.5% on the full amount of corporation pre-tax profits; if he will provide figures or projections on what such a minimum effective rate would yield in extra revenue to the State; and if he will make a statement on the matter. [10628/13]
View answer44. Deputy Joan Collins asked the Minister for Finance if, given EUROSTAT figures that put Ireland's implicit tax rate at 6.8%, he will consider establishing a minimum effective corporation tax rate of 12.5% on the full amount of corporation pre-tax profits; if he will provide figures or projections on what such a minimum effective rate would yield in extra revenue to the State; and if he will make a statement on the matter. [10629/13]
View answerI propose to take Questions Nos. 32 and 44 together.
In a number of answers to previous Parliamentary Questions on this issue I have repeatedly advised that there is no agreed international methodology for calculating the ‘effective rate’ of corporation tax. With that in mind, I am unsure as to the premise of the Deputies’ questions which seems to imply that Ireland has an ‘effective rate’ that is significantly lower than our 12.5% rate.
I would reiterate that companies in Ireland pay the standard 12.5% rate on their profits which are generated in Ireland. A higher 25% rate applies in respect of investment, rental and other non-trading profits and profits from certain petroleum, mining or land dealing activities.
Unlike some other countries who have a high headline rate of corporation tax but also have a significant number of reliefs, the approach in Ireland is transparent. Our policy in relation to the corporation tax rate in Ireland is clear: we have a relatively low headline rate of corporation tax which is applied to a broad base. There are only a small number of targeted incentives in Ireland. Such reliefs include, for example, the R&D tax credit and the 3 year exemption from corporation tax for start-up companies. These few reliefs are tightly focussed: firstly on the creation of additional employment as is consistent with current Government policy, and secondly on areas of innovation with a view to generating high value-added economic activity in the country.
Specifically in relation to the Eurostat figure referred to in the Deputies’ questions, I understand that this figure is based on national accounts data and the report itself highlights that the tax base derived from national accounts data does not correspond to the actual or legal tax base used in computing tax liabilities.
In answer to previous Parliamentary Questions on this subject, I referred to an estimate from a report produced by the World Bank and PricewaterhouseCoopers which put the effective rate in Ireland at 11.9% (Paying Taxes, 2013). This comparative report looked at 183 countries and calculated the effective rate based on the tax obligations of a standardised company operating in each country, using standard assumptions regarding exemptions, deductions and allowances. I also referred to a study by the European Commission (Taxation Trends in the EU 2011), which indicates Ireland has an effective corporate tax rate which is close to or indeed higher than the statutory 12.5% rate (this is likely because of the 25% rate that applies generally to non-trading income).
I have been clear that my Department does not take ownership of these reports, but rather have quoted them to give the Deputy an example of the differences that exist in comparative studies on effective tax rates, depending on how the rate is calculated or who carries out the calculation. Given the absence of an agreed definition and the fact that certain of the estimates appear to show Ireland as having an effective rate of tax even higher than the headline rate of 12.5% - it is not possible to provide projections on what a minimum ‘effective rate’ would yield.
