Dáil Éireann Debate, Tuesday - 26 July 2022
414. Deputy Richard Boyd Barrett asked the Minister for Finance the estimated full-year revenue that would be generated by imposing a minimum effective corporate tax rate of 15% on pre-tax gross trading profits before deductions, reliefs and allowances and assuming no behavioural change; and if he will make a statement on the matter. [41551/22]
View answerAs signatories to the OECD Two Pillar agreement, Ireland is now working towards the introduction of the 15% global minimum effective corporation tax rate by end 2023. While this will increase the tax rate for in-scope companies, it is important to recognise that this is only one element of the Two Pillar agreement. Any projected changes to corporation tax yields following implementation must therefore also take into account Pillar One, which provides for a reallocation of certain profits to market jurisdictions. My Department’s current estimate of the cost of joining this agreement is in the region of €2 billion annually, albeit that it remains very difficult to accurately estimate the impact at this stage.
Ireland signed up to the OECD Two Pillar agreement in October 2021 in the knowledge that there would be a net cost in terms of reduced tax revenues. However, the agreement will have broader benefits in bringing stability to the international tax framework after the turbulence and uncertainty of recent years, allowing companies the certainty to plan investments and focus on core business activities.
With regard to effective rates of tax, analysis undertaken by the Department of Finance (co-authored by an independent academic); a separate report undertaken by the Comptroller and Auditor General; and Revenue’s annual analyses of corporation tax payments and returns, all using the most appropriate methodology, confirm that the overall effective rate of corporation tax paid by corporations in Ireland is between 10% and 11%. While this percentage is lower than the 12.5% headline rate, this can be attributed to the availability of a small number of targeted tax measures that may lower the effective rate of corporation tax paid in Ireland.
On a straightforward, mathematical basis there would be a theoretical yield from introducing a 15% minimum effective corporation tax rate for all companies. However, as has been demonstrated in research published by my Department and the ESRI, it is likely that such changes would lead to lower levels of economic activity, investment and employment creation by businesses, which in turn would be expected to result in reductions in tax revenues across a number of tax heads. It is for this reason that, before joining the OECD Two Pillar agreement, I ensured that Ireland would continue to be able to offer a 12.5% rate for businesses out of scope of the agreement, i.e. businesses with revenues less than €750m. This means that over 95% of companies operating in Ireland are outside of the scope of the global minimum effective tax rate of 15% and they will continue to be taxed at the 12.5% rate.
Therefore, it is not possible to accurately or robustly estimate the potential yield from an effective rate increase as proposed by the Deputy.
