Half of State’s corporate tax receipts could be wiped out, warns IMF

The introduction of a minimum global corporate tax rate could – in an "extreme scenario" – wipe out half of Ireland's €11.8 billion corporate tax base, the International Monetary Fund (IMF) has warned.

In its latest post-programme review of the Irish economy, the Washington-based fund assesses the impact of global tax changes on Ireland’s budgetary position.

In a worst-case scenario – involving the top 10 largest corporation tax contributors leaving Ireland on foot of a new global minimum rate – receipts could fall by as much as 50 per cent, the IMF said.

On the basis of last year’s receipts, this equates to a decline of nearly €6 billion.

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"This is a tail-risk scenario and we do not anticipate that it will happen," Khaled Sakr, head of the IMF mission to Ireland, said.

He said the changes would be mitigated by Ireland's "non-tax comparative advantages" such as its skilled labour force, favourable business climate and strong trading ties with the United States, the UK and the European Union.

The US has proposed a minimum rate of 21 per cent on the international earnings of US companies, which is significantly above the 12.5 per cent Irish rate.

The fear is that a minimum rate could undermine Ireland’s attractiveness for investors.

The Department of Finance believes corporation tax receipts will be roughly €2 billion lower by 2025 on foot of the proposed changes, though Minister for Finance Paschal Donohoe has hinted the impact could be bigger.

Investment

In its review, the IMF said the Irish Government needs to raise more taxes to invest in education, training and affordable housing and childcare once recovery from the pandemic has taken hold.

The fund said “sustained growth” in the Irish economy would “require more investment in the social and physical infrastructures”.

These “expenditure needs”, as well as population ageing and high debt levels, call for additional public revenue, which would require a broadening of the tax base once the current crisis subsides.

Meanwhile, Tánaiste Leo Varadkar is said to have ruled out any hikes to income tax over the coming years.

While carbon taxes would rise and the local property tax would be revised, he said at a Fine Gael parliamentary party meeting on Wednesday evening, the Government should not "concede" to increases to income taxes.