Tax revenue from international financial services companies falls

Tax revenue paid by Ireland’s international financial services companies fell in 2012 as the sector continued to suffer in the global financial downturn.

According to provisional figures compiled by the Revenue Commissioners, companies operating in international financial services throughout Ireland paid corporation tax of €456 million in 2012, a decrease of €10 million, or 2 per cent, on 2011. Companies operating in the sector employ some 33,000 people.

Corporation tax is paid by financial services firms on trading income, indicating total profits of €3.7 billion among such firms in 2012 based on a tax rate of 12.5 per cent. This is a reduction of €80 million, or 2 per cent, on the previous year. The reduction in tax take might also be due to companies carrying forward losses from previous years and using them to offset tax liabilities in 2012.

Falling profits

At its peak in 2009 the combined International Financial Services Centre (IFSC) and international financial services sector paid some €1.4 billion in corporation taxes, but since then profits have fallen in line with the global financial crisis. The significant reduction is due in part to a reclassification of the statistics by the Revenue.

With the end, in December 2010, of the 10 per cent tax regime that facilitated the launch of the IFSC in 1987, it is no longer possible for the Revenue to distinguish between corporation tax paid solely on IFSC activities and on other income, so some companies are no longer included in the data. An exception is made in the case of the main associated banks, where an estimate of the tax paid by them on their IFSC activities is derived from indicative data.

In 2012 the sector contributed some 10 per cent of total corporation tax revenue, down from 16 per cent in 2010. Banking and associated activities such as securitisation and investment in asset-backed securities have been the hardest hit sectors. Assets fell by more than a third from a high of €540 billion in February 2008 to €338 billion in November 2012, the most recent figures.

Investment funds

The investment funds servicing sector, however, continues to go from strength to strength, and as of the third quarter of 2012 serviced some €2.2 trillion in funds, up by 23 per cent from the same period in 2011. But there will always be periods of ebbs and flows in international financial services.

While Bank of America Merrill Lynch, for example, might be transferring its Dublin-based derivatives book to the UK, having reported pretax losses of some $453 million (€350 million) in 2011, others such as Citi are doing better. It reported €755 million profits for its Irish operation in 2011 .