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Tax Data

Dáil Éireann Debate, Wednesday - 13 July 2022

Wednesday, 13 July 2022

Ceisteanna (182, 183)

Gerald Nash

Ceist:

182. Deputy Ged Nash asked the Minister for Finance the estimated yield from an increase in the 12.5% rate for trading profits by either 0.5% or 1%, to increase the 25% rate for non-trading profits by 1%, 2% or 5% in tabular form; and if he will make a statement on the matter. [38695/22]

Amharc ar fhreagra

Gerald Nash

Ceist:

183. Deputy Ged Nash asked the Minister for Finance the estimated gains that would accrue to the Exchequer over the years 2021 to 2025 from the introduction of a minimum effective corporation tax rate of 12.5% and 15%, respectively in tabular form; and if he will make a statement on the matter. [38696/22]

Amharc ar fhreagra

Freagraí scríofa

I propose to take Questions Nos. 182 and 183 together.

Ireland’s corporate tax regime has been built on certainty and predictability, and the 12.5% corporation tax rate on trading income has been a cornerstone of that regime for almost 20 years. This stability has enabled companies to plan long-term investments in Ireland, generating employment and increasing economic activity.

The Deputy will be aware that Ireland signed up to the OECD Two Pillar agreement in October 2021, including the agreement of a global minimum effective rate of 15% for in-scope entities. Before joining the OECD Two Pillar agreement in 2021, 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.

On a straightforward, mathematical basis there would be a large theoretical yield from increasing the 12.5% trading rate of corporation tax (with a smaller theoretical yield for the non-trading 25% rate). 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, behavioural changes in the locational decisions of multinational companies and employment in the multinational sector. In turn, this would be expected to result in reductions in tax revenues across a number of tax heads. Therefore, it is not possible to accurately or robustly estimate the potential yield from rate increases of this nature.

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.

As signatories to the OECD Two Pillar agreement, Ireland is now working towards the introduction of the 15% global minimum effective 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. 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 that implementation is expected to bring much needed stability to the international tax framework after the turbulence and uncertainty in recent years, allowing companies the certainty to plan investments and focus on core business activities.

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.

The decision to join the global agreement was not taken lightly but I firmly believe this agreement brings a unique opportunity to reframe the international taxation architecture which has largely remained in place for almost a century

Question No. 183 answered with Question No. 182.
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