Dáil Éireann Debate, Thursday - 1 February 2024
86. Deputy Richard Boyd Barrett asked the Minister for Finance the latest projections for corporate tax revenue, given the introduction of 15% effective corporate tax rate for 2024 and 2025; and if he is satisfied that 15% will in reality be an effective tax rate. [4572/24]
View answerOne of the great untold stories of the Irish economy is the fact that over the last 15 years or so, working people were hammered, first, with an austerity crisis and, more recently, a cost-of-living crisis, yet in that period corporate profits increased, for example, by 235% from 2012 to 2021. Some of us campaigned for those corporations to pay more. We now have a 15% rate, something the Government stubbornly resisted for a long time. Does the Minister have projections for how much they are actually going to pay in tax in the next couple of years?
At the time of budget 2024, corporation tax was projected to reach €24.5 billion for this year and €25.8 billion for 2025. The assumption in the budget fiscal projections is that the impact of the OECD BEPS agreement on revenues will not materialise until 2026.
The Government’s fiscal strategy is based on the assumption that a large proportion of the rise in corporation tax seen in recent years is windfall in nature, not linked to our domestic economy, and likely to be transient. That is why the Government is establishing two new long-term investment funds to make use of these temporary receipts to prepare for future challenges.
Changes to the international taxation environment are likely to have a negative impact on our corporate tax revenues over time. While negotiations in relation to pillar 1 of the OECD’s base erosion and profit shifting process are ongoing, the EU minimum tax directive, or pillar 2, was agreed in December 2022 and introduced for companies on 31 December last year. Due to the novel and separate filing system for pillar 2 returns, the first payments are not expected until 2026. While pillar 2 is expected to bring in additional revenue, the combined impact of both pillars 1 and 2 is estimated to result in a net reduction in Irish corporation tax receipts. Calculating this impact is a very difficult exercise. The budget 2024 projections include a technical assumption, with an estimated overall net cost of the introduction of both pillars of €2 billion relative to the baseline in 2026.
The pillar 2 introduction of a 15% minimum rate is now in effect. Pillar 2 provides for the adoption of a 15% minimum effective tax rate applicable to large companies with an annual turnover of over €750 million in at least two of the previous four years. All other companies will remain subjected to the statutory 12.5% rate in relation to trading income and a 25% rate in relation to non-trading income. I will update the Deputy further in my next response.
The big question is if there is actually going to be an effective rate of 15%. That itself is still a very low rate compared with what ordinary workers pay. I would argue that previously, the 12.5% was not effective. In 2021, there were €250 billion of pre-tax profits on which €15 billion was paid in corporation tax. That is a rate of 6.1% and it is due to the taxable income being dramatically reduced by allowances and deductions. Revenue states that in 2021 there were corporate tax expenditures - tax breaks for the corporate sector - of €39 billion, mostly for a tiny number of corporations. Are we actually going to get a 15% effective rate or are we going to continue with loopholes, deductions, allowances, credits and so on that allow these incredibly profitable corporations to pay a fraction of the headline tax rate?
In Ireland our corporation tax system is statute based. The reliefs, exemptions and credits the Deputy refers to are clearly defined in law and consistently applied.
We have transposed the EU minimum tax directive and we will apply the minimum effective rate in line with the requirements of that directive and in line with the legislation that we have passed which is now consistent with that directive.
The issue historically has been that in Ireland we have had a relatively low rate, but applied to a broad base. Many other countries - various studies have pointed to this - have a higher headline rate, but applied to a narrower base, and have many more reliefs, exemptions and allowances, as the Deputy described. What we have now is an agreed rule book - an international agreement which Ireland signed up to.
It is important that we retain incentives. That is why the carve-out of the research and development tax credit, as part of pillar 2, was a very important instrument for Ireland.
I believe the Minister stated that the projected revenues for next year are €24 billion. Will the Minister confirm that?
Could the Minister tell us what are the corresponding projected pre-tax profits? Working back on previous years, that would suggest €400 billion of pre-tax profits. I would be interested if the Minister could confirm that.
Those allowances, credits, etc., are expenditures. They are tax expenditures. That is public money given back to companies that are making absolutely enormous profits.
The Minister says that it is in law. It is, but we do not really scrutinise to the degree we should these tax expenditures. The research and development tax credit, for example, is €800 million. It is seriously questionable whether most of that going to a small number of multinationals, as opposed, for example, to going into research and innovation, where we have one of the lowest levels of public expenditure in the European Union, is a good expenditure of public money.
The Deputy's central thesis seems to be that multinationals are not paying enough tax in Ireland but if one looks at the data and the pattern over the past number of years, the amount of tax that we are actually collecting in Ireland on corporation tax has increased dramatically. It increased multifold in recent years, and the Deputy knows that.
Their profits have as well.
Profits have as well and the amount of tax paid is, of course, a direct function of profitability.
The allowances and the credits that we have are clear. They are transparent, they are laid out in law and they are consistently applied. They are now fully consistent with pillar 2 of the global agreement.
To conclude the answer to the first point, which addresses the Deputy's question around projections, I have given a commitment to Deputy Doherty and to the Deputy and others, as part of the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, that my Department, together with the Revenue Commissioners, will continue to work on the long-term term impact of the two-pillar solution with the goal of updating the projected fiscal impact published as part of the stability programme update this spring. We will give a further update, as I believe we should, in the stability programme update of what the Revenue implications are for Ireland of pillars 1 and 2.
