Taxing the Top 1,000 companies: which, where and how much?

The topic of corporation tax is hard to avoid these days: who pays it, who doesn’t, and should companies be paying more? As the debate continues to rage on both sides of the Atlantic about the rights and wrongs of multinational’s tax practices, we look at how much tax Ireland’s Top 1,000 companies are paying.

A diminishing contributor
Given the challenging economic environment, it's no surprise to see that corporation tax has diminished significantly since the boom. In 2006, it peaked at € 6.7 billion on the back of soaring profits, but it has been falling since, hitting a trough of €3.5 billion in 2011 before recovering somewhat last year. Of more significance perhaps, is the degree to which it contributes to the Government's coffers, as the sharp rise in income tax in recent years means that the economy has become increasingly dependent on individuals.

In 2003, corporation tax accounted for 15 per cent of total tax revenues, which meant that €1 in every €7 of tax generated came from corporation tax. Since then it has declined in importance, with corporation tax accounting for as little as €1 in every €10 of tax revenue in 2011, and €1 in every €9 last year.

Ireland is not alone in shifting the tax burden away from corporations and on to individuals. In the US, for example, corporate taxes, as a percentage of total federal tax revenue, have fallen to 9 per cent from more than 30 per cent in the 1950s.

Who pays tax at 12.5 per cent?
As the survey clearly illustrates, while a number of Irish-based companies, including Ryanair and Paypal, pay tax at 12.5 per cent, Ireland's headline corporation tax rate is more an initial indicator of the tax a company must pay than a hard-and-fast figure.

Indeed this survey shows that Ireland’s largest companies often pay tax at a rate of more - and less - than 12.5 per cent. And Ireland is not the only country where the effective rate differs from the headline rate. France, for example, has a headline rate of 33.33 per cent but an effective rate of 8.2 per cent, while Germany has a statutory rate of 30-33 per cent, but the effective rate is lower, at 18.9 per cent.

A recent study by the US Government Accountability Office found that large US corporations paid an average of 12.6 per cent tax on their profits, far below the nominal US rate of 35 per cent.

Where a company has a higher-than-expected tax rate, it may be due to the inclusion of nontrading items that could distort the tax figures. Where it is lower, it may be due to complex arrangements, or simply because a company has carried forward its losses from previous years, which can be used to offset a tax bill.

The multinationals who do pay tax
While multinationals may be making the headlines globally due to dubious tax practices, it seems that some are nonetheless paying considerable rates in Ireland. The online retailer Amazon, for example, has been top of the debate in the UK, but the survey shows that its Irish operation paid taxes of almost €3 million on profits of € 6.9 million in the year to December 2012. This corresponds to an effective rate of 43 per cent, and it's not a once-off. In 2011, Amazon paid corporation tax at a rate of 29 per cent and at almost 40 per cent in 2010. Google also pays one of the highest tax rates in Ireland. In 2011, it paid an effective rate of 91 per cent, due in part to a € 12 million foreign withholding-tax charge.

But, as evidence has shown, it can be difficult to read too much into these figures.

And those who don't . . .
The technology giant Apple may have raised the ire of many when its low levels of taxation were revealed, but it's not the only multinational to adopt such an approach. The pharmaceutical firm Abbott, for example, booked an eye-watering profit of €1.1 billion in the year to December 2011 but paid tax at a rate of zero on it, because it is tax resident in Bermuda.

On the other hand, indigenous Irish companies will often pay a higher rate of tax than their foreign counterparts.

Feargal O’Rourke, a tax partner with PwC, says this comes down to the jurisdictions in which the companies operate, and to whether they are selling goods or services.

With goods, it can be a lot more difficult to seek out tax-attractive methods of reporting profits, and most of Ireland’s largest companies fall into this category.

So is it time to update the tax laws and bring digital operators further into the tax fold? O’Rourke thinks so.

“The tax regime is broken at the moment,” he says. In the past, it was impossible to “sell into a country without creating a taxable footprint”. Nowadays, however, commerce has moved online and this leads to falling tax receipts. This suggests to O’Rourke that there could be an argument for paying tax where your customers are.

Losses will eat into tax take
The survey also shows how corporation tax take will continue to be affected by the downturn even when the good times return; if indeed they do. For example, one of the companies highlighted in the survey as having paid no tax in the year to June 2012 is the retailer Harvey Norman. Despite reporting profits of some €19 million, the Australian retailer's bill to the Exchequer was zero, because it carried forward losses of €2.2 million.

And unless the economy rebounds at an exponential rate, it’s unlikely the retailer will be paying corporate taxes any time soon: it still has tax losses of € 67.2 million, which it can carry forward to use against future taxable profits.