Strong corporate tax receipts ‘sustainable’ until 2020

Review of Ireland’s corporation tax code acknowleges improvements in transparency

Ireland’s corporate tax code meets the highest standards internationally, a Government-commissioned report has concluded. And it says the recent surge in tax receipts from multinationals based here will continue until at least 2020.

The review, by economist Seamus Coffey, who is also chairman of the Government's Fiscal Advisory Council, comes in the wake of a series of controversies concerning Ireland's tax regime, culminating in the European Commission's ruling last year that Apple should repay €13 billion in back taxes to Ireland.

Mr Coffey was asked specifically to look at issues relating to tax transparency, tax certainty and the avoidance of preferential treatment, an allegation that has been repeatedly made against the Irish Government in relation to Apple.

His remit precluded any examination of a change to the State’s 12.5 per cent headline rate of corporate tax.

The report noted that, since 2015, there has been a “level shift” in corporate tax receipts flowing to the exchequer, with a significant portion of the increased revenue coming from a just handful of firms, particularly in the technology sector.

About 40 per cent of the €7.4 billion taken in last year came from just 10 companies. This has prompted questions over the sustainability of the tax revenue and warnings that it should not be used for current spending.

“Although it is impossible to be definitive and the volatility in receipts will remain, the level-shift increase in corporate tax receipts seen in 2015 can be expected to be sustainable over the medium term to 2020,” Mr Coffey’s report concluded.

His review claimed that Ireland had reached the highest standards internationally with regard to transparency. However, it does make 18 recommendations aimed at bringing the code more in line with current OECD norms and insulating the Government’s new knowledge development box, which provides tax incentives for innovation, from being exploited through loopholes such as the now-defunct “double Irish”.

Intellectual property

Among measures likely to be considered on budget day is a restriction on the tax write-off offered in relation to the transfer of intellectual property, a move designed to smooth out corporate tax receipts for the exchequer.

The review also recommended modernising the regime governing transfer pricing, the amount subsidiaries charge each other for goods and services, which was also at the heart of the double Irish loophole.

The report advocated the adoption of a more territorial tax system, where firms pay tax solely on revenue generated here, and an enhanced foreign tax credit regime to maintain Ireland’s competitiveness.

Launching the report, Minister for Finance Paschal Donohoe said the review made "very clear that certainty and predictability of corporation tax were essential elements" of Ireland's tax code. He noted that the 12.5 per cent headline rate remained the bedrock of the State's competitive tax regime, "and that is not going to change".

However, Chartered Accountants Ireland warned the measures, if adopted, would increase business taxes.

“The Coffey report into corporation tax policy in Ireland was born of political necessity, but Government should be careful to use its recommendations to modernise the system, rather than as a justification to levy new taxes on business,” said Brian Keegan, the group’s director of tax and public policy.

If adopted, the net effect of the proposals would be to increase the tax take from the corporate sector, he said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times