The Irish corporation tax regime contains a small number of specifically targeted tax reliefs. The focus of these reliefs is on the creation of additional employment, as is consistent with current government policy, and on innovation, with a view to generating high value-added economic activity in the country.
Some other countries have a high headline rate of corporation tax 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.
The R&D tax credit is one of the few such reliefs available which may lower the effective rate of corporation tax paid in Ireland. The central purpose of the RandD tax credit is to encourage companies to undertake high-value added RandD activity in Ireland, thereby supporting jobs and investment here.
In relation to losses, under existing loss relief provisions in the Taxes Acts, any unrelieved trading losses of a company for an accounting period may be carried forward for offset against trading income of the same trade in future accounting periods. Losses incurred in the carrying on of a trade are a normal fact of business life. The provision of relief for such losses is a standard feature of our tax code and of all other OECD countries. It would be difficult to justify the taxation of business profits without also taking due account of business losses. The carry forward of unrelieved trading losses is a usual feature in other tax jurisdictions.
The effective tax rate of companies in 2015 was provisionally calculated by the Revenue Commissioners as 9.8%, representing a marginal increase on the 2014 rate of 9.7%. In 2012 and 2013, the effective rate was 10.1%. I would note that while these percentages are lower than the 12.5% headline rate, this can be attributed to the availability of the small number of targeted measures, such as the RandD tax credit, available in Ireland which may lower the effective rate of corporation tax paid.
The issue of tax avoidance has been at forefront of the international tax agenda in recent years. The agreement of the OECD BEPS reports in late 2015 represented a landmark achievement in agreeing comprehensive reform of the international tax system. Ireland has taken a number of steps towards implementing the BEPS recommendations and the Coffey Review sets out a roadmap for Ireland to follow in bringing certainty to the implementation of the remaining recommendations, beginning with the launch of a consultation process which is now underway.
In keeping with our commitment to transparency, Ireland was among the first countries to implement Country by Country Reporting. The first reports under the Country by Country Reporting requirement will be filed with Revenue in Ireland and worldwide this year. These reports will be exchanged with all relevant countries to ensure tax authorities have a clear picture of the activities of large multinationals and can assess any risk that the correct tax has not been paid in the correct place.
Ireland was also among the first countries to sign the OECD BEPS multilateral instrument (MLI) in June this year. This MLI will provide the mechanism for extensive changes to tax treaties globally. It will ensure that tax treaties are updated to reflect a number of important OECD BEPS recommendations, including agreed standards on treaty shopping and dispute resolution. Ireland will now seek to ratify the MLI, with the first steps in this process being taken in the Finance Bill.
