‘Effective’ tax rate paid by companies here last year was 12.4%

The effective tax rate paid by Irish companies last year was 12.4 per cent, broadly in line with the statutory rate of 12.5 per cent, according to a new report by accounting firm PwC and the World Bank.

The finding contradicts data from the Comptroller and Auditor General (C&AG), which suggests that 13 of Ireland’s largest 100 companies, which account for more than 50 per cent of State’s corporate tax base, paid an effective rate of tax of just 1 per cent as recently as 2015.

However, the PwC/World Bank’s Paying Taxes report based its finding on what a hypothetical “medium-size domestic” company here is liable to pay rather than what companies actually pay and excludes large multinationals.

As a result, it concludes that Ireland’s statutory headline rate on profits of 12.5 per cent was “broadly in line” with its effective rate of 12.4 per cent, while noting that for many EU countries the statutory rate is significantly higher than the effective rate.

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Ireland’s corporate tax rate, which is one of the lowest in the OECD, has been at the centre of an international storm over multinational tax avoidance.

The notorious “double Irish” loophole, which allowed companies shift profits to low-tax or no-tax jurisdictions while remaining resident here is only being fully phased out this year.

Internet search giant Google, which has been using it to channel billions in global profits through Ireland and on to an entity in Bermuda, announced last week that it was dropping the arrangement and relocating the bulk of its assets back in the US.

Social insurance

The PwC/World Bank report suggested that, on average, a company here pays just over a quarter (26.1 per cent) of its profits in taxes, comprising 12.4 per cent in profit taxes, 12.4 per cent in labour taxes such as social insurance, and 1.3 per cent in other taxes.

This compares to an EU average of 38.9 per cent and a global average of 40.5 per cent. “Ireland is substantially more competitive on the cost of employing people,” the report said.

As well as assessing the amount of tax levied on businesses, the report ranks countries according to their levels of bureaucracy for paying and filing taxes.

It ranked Ireland first in the EU and fourth globally out of 190 economies for ease of paying taxes.

According to the study, a mid-sized Irish domestic company spends just over a quarter of its total commercial profits in taxes, spends just over two weeks (or 82 hours compared to a global average of 234 hours ) dealing with its tax affairs and makes a tax payment nearly every six weeks.

“This compares very strongly to EU and global averages in the context of administration and the compliance burden,” it said.

Tax competitiveness

"The more efficient a tax system, the better it is for business," said Susan Kilty, head of tax for PwC Ireland. "This, in turn, helps promote economic growth and investment. We also do very well in terms of tax competitiveness. This is crucial to our standing as a location of choice for foreign direct investment."

The report highlighted the increasing use of technology and data analytics by tax authorities to “drive efficiencies within the tax function of both companies and national tax authorities”.