IT sector drove massive increase in corporation tax take

The surge in corporation tax in 2020 was due entirely to a jump in profits in the information and communications sector, which includes the big digital multinationals. according to the Tax Strategy Group papers published ahead of the budget.

Tax payments from the sector jumped to €2.88 billion in 2020 from €1.12 billion in 2019, increasing the share of corporation tax accounted by this sector from 10 per cent to 24 per cent.

This more than accounted for the overall rise in corporation tax to €11.883 billion last year from €10.887 billion in 2019, with the pandemic hitting payments in some other sectors.

The data, included by public servants in papers which outline options for the budget, further underline Ireland’s reliance on a small number of big companies for the bulk of corporation tax payments. This trend has accelerated as SMEs have suffered more during the pandemic.

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The manufacturing sector, including big pharma companies, was the other big tax source, remitting a total of €2.9 billion last year, in line with 2019. Foreign-owned multinationals accounted for 82 per cent of corporate tax payments in 2020, up from 77 per cent in 2019.

OECD reform

Ireland's increasing reliance on multinational taxpayers comes as the rules governing these companies are under discussion at the OECD, with Ireland among six of 139 countries involved in the talks not to have signed up to a draft deal.

The Tax Strategy Papers refer to Ireland’s “broad support” for the bulk of the deal – including the part of it which proposes a minimum tax rate – but repeats reservations about the uncertainty caused by the commitment to introduce a minimum corporate tax rate of “ at least 15 per cent”.

The outcome of the OECD work “has the potential to significantly impact Ireland’s fiscal, budgetary and industrial policy”, the papers say. The document repeats forecasts that the OECD deal could cost Ireland up to €2 billion in lost revenue each year, but says it is impossible to update this given the wide range of factors still to be decided.

As well as the details of the minimum corporate tax rate, the officials point out that the US Congress still has to agree proposals on its own tax reform plan, which is meant to align with the OECD process.

The document also repeats Ireland's outright opposition to a European Commission proposal in a July 2020 action plan that tax measures could be passed in some circumstances by qualified majority voting rather than unanimity. This could be vital in the EU's reaction to OECD plan.

Digital gaming

Elsewhere the papers say that work on a tax credit for the digital gaming sector, proposed in the last budget, is continuing and suggest that Ministers look favourably on extending the relief from tax for start-up companies, which is due to expire at the end of this year.

In relation to Brexit, the papers say that the current practice of imposing 23 per cent VAT on used car imports from Britain – which enter directly or via Northern Ireland – "is a temporary measure pending a more long-term solution to be agreed between the EU and the UK".

It also says that the impact of the return of duty free at airports – and possibly ports – for people travelling to Britain could have a bigger impact on domestic businesses as travel picks up after the pandemic.