Thomas P. Broughan
Question:164. Deputy Thomas P. Broughan asked the Minister for Finance the projected yield that could be generated by introducing minimum effective rates of corporation tax of 7.5%, 9% and 10%. [27304/14]
View answerTuesday, 24 June 2014
Questions (164)
Written answers
It is important to clarify at the outset that there are two separate scenarios that are often confused in discussions on the effective rate of corporation tax. The first is the global rate of tax which is paid by multinational companies who operate across a number of jurisdictions. This is a 'blended' rate which takes into account the amount of tax charged across all of the countries that a company trades in and not just Ireland.
The extremely low effective rate figures are sometimes quoted and attributed to Ireland are based on a flawed premise. The figures are estimated by dividing the amount of Irish tax paid by a total profit figure that includes substantial profits made by companies that are not tax resident in Ireland. They are running together the profits earned by group companies in Ireland and in other jurisdictions and incorrectly suggesting that Irish tax does or should apply to both. Ireland cannot tax profits that are properly attributable to other jurisdictions.
The ability of some multinationals to lower their world-wide rate of tax using international structures reflects the global context in which Ireland and indeed all countries operate. The best way to effectively address this issue is for countries to work together at the international level and the appropriate action is being considered in this regard by the OECD as part of their project on Base Erosion and Profit Shifting and Ireland is participating fully in this process.
The second issue is the effective rate of tax applying in individual countries. Clearly, the domestic rate of tax paid in Ireland is within the control of the Irish tax system and Ireland is responsible for the amount of Irish corporation tax that is charged here. I want to re-emphasise that all companies operating in Ireland - domestic businesses and multinationals - are chargeable to corporation tax at the 12.5% rate on the profits that are generated from their trading activities here. A higher 25% rate applies in respect of investment, rental and other non-trading profits, as well as certain petroleum, mining and land-dealing activities, and chargeable capital gains are taxable at the capital gains tax rate of 33%.
Some other countries have a high headline rate of corporation which is then supplemented by a high number of tax reliefs which reduce the overall rate of tax paid. By contrast, the approach in Ireland is transparent: we have a competitive headline rate of corporation tax which is applied to a broad base. We therefore have only a small number of corporation tax incentives in Ireland, and we make sure that those we do have are specifically targeted. They are focussed on the creation of employment and on areas of innovation. These reliefs are evaluated on a regular basis to ensure that they give the taxpayer value for money.
My Department recently published a technical paper to provide clarity to the Dáil about the seemingly conflicting figures and methodologies. The Department commissioned an external and independent academic to ensure that this piece of work was as objective as possible. This report is published on the Department's website and can be viewed at the following link:
http://www.finance.gov.ie/sites/default/files/140407%20FINAL%20Technical%20Paper%20on%20Effective%20Rates%20of%20Corporation%20Tax%20in%20Ireland.pdf.
Based on data from the Central Statistics Office (using the "Net Operating Surplus") and the Revenue Commissioners (using the "Taxable Income"), this report highlighted that since 2003 the effective corporate tax rate has averaged 10.9% and 10.7% respectively. While this percentage is lower than the 12.5% headline rate, this can be attributed to the availability of the small number of reliefs I referred to earlier such as the R&D tax credit, which was the subject of a comprehensive review last year and which was found to give value for money for the Irish taxpayer.
Therefore, I am not in a position to introduce a minimum 'effective rate' in Ireland in the way the Deputy has suggested.
Question No. 165 answered with Question No. 161.