Irish Corporate Tax Reform Pushed By MPs, To Shore Up Tax Base
The highly concentrated nature of Ireland’s corporation tax receipts represents “an unacceptable level of risk,” according to parliament’s Public Accounts Committee.
The PAC has published a new report on Ireland’s corporation tax receipts. Corporation tax accounted for 15 percent of total tax receipts in 2016, with 70 percent of all corporation tax paid by the top-100 companies and 37 percent paid by just 10 companies. The Committee set out to examine the risk posed by this high concentration of receipts and how best to resolve such.
According to the Committee, “The highly concentrated nature of corporation tax receipts represents an unacceptable level of risk to the sustainability of the corporation tax regime and to overall exchequer income.”
The Committee found that, in 2015, the average effective corporate tax rate applying to all companies was 9.8 percent. However, it also calculated that 13 of the 100 companies with the highest taxable income had an effective rate of less than one percent, a figure it said reflected the use of tax credits and reliefs, and in particular of double taxation relief and research and development tax credits.
The PAC recommended that the Finance Department conduct a review of the corporate tax system and publish proposals for dealing with the high concentration of receipts. It also argued that the Government should carry out a detailed analysis of double taxation relief, which reduced corporation tax receipts by EUR948m (USD1.1bn) in 2015.
The PAC additionally found that the Finance Department has identified eight approaches for calculating the effective rate of corporation tax on company profits. Of these eight, the Department has identified two as being the most appropriate measurements. The Committee said that the Department should take steps to ensure that there is general agreement on a single most appropriate calculation methodology.
According to the PAC, it has not been possible for the Irish Revenue to provide accurate details on PAYE paid by participators in close companies. The Committee said that it is not satisfied that Revenue can demonstrate that the application of the close company rules is achieving its intended purpose, and recommended that Revenue determine whether the rules are effective.
The Committee added that Revenue data is also lacking on losses carried forward by companies. It said that greater priority should be given to the sustainability of corporate tax receipts on an annual basis and that the Finance Department should consider the introduction of a 10-year time limit or sunset clause and/or other restrictions in respect of losses carried forward.
