On the matter of the effective corporate tax rate paid by corporations in Ireland, there have been seemingly conflicting figures and methodologies used in reference to Ireland. In April 2014, my Department prepared and presented a report for the Finance Committee to explain figures which are quoted and attributed to Ireland on this matter.
This technical paper, available on the Department of Finance’s website, provides clarity on the matter and to ensure this piece of work was as objective as possible, my Department commissioned an external and independent academic to co-author the paper. Based on data from the Central Statistics Office and Revenue, the report highlighted that since 2003 the effective corporate tax rates on Net Operating Surplus and Taxable Income averaged 10.9% and 10.7% respectively.
While these percentages are lower than the 12.5% headline rate, this can be attributed to the availability of the small number of targeted tax measures that are available in Ireland that may lower the effective rate of corporation tax paid in Ireland.
Furthermore, the Comptroller and Auditor General’s (C&AG) Report Annual Report for 2016 highlighted that 79 of the top 100 companies paid an effective rate of 10% or more, and almost two-thirds paid in excess of 12%. This supports the previous work carried out by my Department, which demonstrated that the effective rate of corporate tax in Ireland is close to the headline rate of 12.5%.
It is important to note that, of the companies which paid less than an effective rate of 10%, in most of these cases the relevant company was in receipt of foreign dividends for which double tax relief was available for taxes incurred in other jurisdictions in respect of that income. Therefore, when foreign taxes are factored in, the rate of tax was substantially higher.
In a number of cases, the effective corporate tax rate was also impacted by R&D tax credit claims. The R and D tax credit is one of the few reliefs we have which may lower the effective rate of corporate tax paid in Ireland. Some other countries have higher headline rates, supplemented by a high number of tax reliefs, which reduce the overall tax paid. In contrast, Ireland’s approach is transparent. We have a competitive headline rate of corporate tax applied to a broad base. Of the small number of incentives we have, these are focused on the creation of additional employment and on areas of innovation.
Further work carried out by Revenue, has identified that the effective rate of tax paid by companies in 2015 was provisionally 9.8%, which was a marginal increase on the 2014 rate of 9.7%. The 2012 and 2013 figures are 10.1%. Again, while these percentages are lower than the 12.5% headline rate, this can be attributed to the small number of targeted tax measures available in Ireland.
On the basis of this extensive analysis, I am satisfied that companies in Ireland are paying the appropriate rate of corporate tax on profits generated by those companies in Ireland.
I and my officials recognise the importance of ensuring effective taxation of multinational companies and the need for internationally agreed solutions to counter aggressive tax planning, base erosion and profit shifting. However, we do not believe these issues can be properly addressed by focussing on a minimum effective level of taxation only. A minimum effective tax would be a fundamental change to our system and would be unprecedented in comparison with other jurisdictions.