Ryanair, Glanbia and Kerry most exposed Irish plcs in OECD tax plan

Irish-owned multinationals had an 8% effective tax rate in 2019

Food ingredients giant Kerry Group reported effective tax rates of 12.3%-12.8% in  past two years.

Food ingredients giant Kerry Group reported effective tax rates of 12.3%-12.8% in past two years.

 

Ryanair, Glanbia and Kerry Group are among the most vulnerable Irish public companies to tax bill hikes from the Organisation for Economic Co-operation and Development’s (OECD) plan for a minimum effective global rate of 15 per cent, as the Government caved on Thursday to international pressure to sign up to the deal.

That is based on Irish companies’ reported effective tax rates in their annual accounts in recent years.

Michael O’Leary-led Ryanair enjoyed an effective tax rate of 3.2 per cent across the group for the year to March 2020, about a quarter of the Irish headline 12.5 per cent rate, before posting a loss for the subsequent 12 months amid the Covid-19 crisis. Ryanair’s effective rate was 6.7 per cent for the year to March 2019.

Food ingredients giant Kerry Group reported effective tax rates of 12.3-12.8 per cent in the past two years. Industry peer Glanbia recorded rates of 11.3-12.3 per cent over the same period.

Dublin-based, but London-listed, cider and beer maker C&C Group’s rates stood at about 12 per cent in the two financial years before it posted a loss for the 12 months to February.

Insurer FBD Holdings and Dalata Hotel Group have reported effective tax rates below 15 per cent in recent years. However, their turnover is below the €750 million threshold proposed by the OECD for companies affected by the planned minimum rate. The Government has said that its 12.5 per cent headline rate will remain in place for businesses with revenue below that level.

While much of the political focus has been the impact of the OECD plan on overseas multinationals that have flocked to the Republic in recent decades, figures published by Revenue earlier this year show that Irish-owned multinationals had a lower effective tax rate, at 8 per cent, than foreign-owned groups, at 11 per cent, in 2019.

“Not only will Ireland’s FDI (foreign direct investment) community be impacted if the new rules come into force, equally Irish headquartered groups including Irish plcs that exceed the group €750 million revenue threshold will certainly be impacted,” said Lorraine Griffin, head of tax with Deloitte Ireland.

“The [difference] between Ireland’s current 12.5 per cent rate versus the global minimum rate of 15 per cent should generally result in an additional tax burden for Irish headquartered groups in scope of the new rules. However, it really depends on a group’s global footprint, whether it is currently doing business in higher or lower taxed jurisdictions, and this will determine the overall impact on an Irish headquartered group’s final tax position under the new OECD proposal.”

This 15 per cent rate will apply to 56 Irish multinationals employing approximately 100,000 people; and 1,500 foreign-owned groups based in Ireland employing approximately 400,000 people, according to the Government.

The list of exposed Irish plcs is based on their reported effective rates in recent annual reports.

However, Seamus Coffey, an economics lecturer with University College Cork, highlighted that companies’ reported rates, based on accounting income, may be different to the effective tax rates arrived at through the OECD plan, which is focused on taxable income.

“For example, with Ryanair there will be a very different treatment of aircraft depreciation for tax and accounting purposes,” he said. In the financial accounts, aircraft will be depreciated over 23 years, which broadly reflects their useful life. For tax purposes, Irish tax law allows the depreciation of aircraft over eight years.

“This means that, at least in the early years of an aircraft’s life, the depreciation charge for tax purposes will be three times larger than the depreciation charge for accounting purposes. This will give rise to very different profit figures.” Higher depreciation charges lead to lower taxable income.

Spokesmen for Ryanair and Kerry declined to comment. A spokeswoman for Glanbia said the group will review the OECD proposals in detail when finalised. “We will navigate any changes that arise from the current proposals,” she said. “The sooner there is clarity on the outcome of the process, the better for business.”

Peter Vale, a tax partner with Grant Thornton in Dublin, said that the ultimate impact on Irish multinationals will depend on the detail of the final accord and how the Republic implements the new rules.

“There is likely to be some level of optionality in terms of how a country adopts some of the measures,” he said. “However, you would expect that if an Irish company has a low taxed subsidiary [overseas], then Ireland may seek to collect any ‘top up’ tax to ensure that the minimum tax is paid.”

Some of the largest Iseq-listed companies report effective tax rates well in excess of the OECD’s planned minimum. CRH’s rate was 30 per cent in 2020 and around 24 per cent for the two previous years, while Smurfit Kappa’s ranged between 26.8 per cent and 28.5 per cent over the same period.