Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I thank Deputy Doherty for tabling amendment No. 68. I have a long note but I will put it on the record because it is useful given the various views about effective tax rates based on the latest report to issue.

The issue of effective tax rates has been the subject of a number of parliamentary questions and discussions at this committee over the past 12 months. It is important to note that two separate issues are often confused in discussions on the effective rate of corporation tax. The first issue is the global rate of tax which is paid by multinational companies. This is a so-called blended rate and takes into account the amount of tax charged across all the countries a company trades in and not just Ireland. The ability of some multinationals to lower their worldwide rate of tax using international structures reflects the global context in which Ireland and all countries operate. The best way to address this issue effectively is for countries to work together at international level, and the appropriate action is being considered in this regard by the OECD as part of its project on base erosion and profit shifting. I know that is an issue the Minister, Deputy Noonan, raised before the break because I was watching proceedings on the monitor. It was an issue on which I spoke to the committee following the most recent informal ECOFIN meeting in Lithuania when we got a very good presentation from the secretary general of the OECD concerning the gold standard it wants all countries to follow. There has been a significant move within the European Union in the direction the OECD has been heralding for some time. The issue the Minister raised before the break was the importance of countries moving at the same time and at the same pace. I am aware there has been considerable discussion of the matter at the committee.

The second issue, which is the subject of Deputy Doherty’s proposed amendment, relates to the effective rate of tax paid by companies in Ireland once account is taken of certain tax reliefs. Deputy Doherty has proposed that I prepare a report on the effective rate of tax charged to domestic businesses in this State and separately to multinational corporations, and to analyse the impact of the Finance (No. 2) Bill with regard to lowering or increasing the effective tax rate. I wish to make it clear that all companies operating in Ireland – domestic businesses and multinationals - are chargeable to corporation tax at the 12.5% rate on the profits that are generated from their trading activities here. A higher 25% rate applies in respect of investment, rental and other non-trading profits, as well as certain petroleum, mining and land dealing activities, and chargeable capital gains are taxable at the capital gains tax rate of 33%.

Some other countries may have a higher headline rate of corporation tax which is then supplemented by a high number of tax reliefs. We are all aware of the extraordinary variety in some countries’ corporate tax rate as against their effective tax rate. That is a predominant issue that arises constantly in the debate. The approach in Ireland, however, is transparent. We have a relatively low headline rate of corporation tax which is applied to a broad base. We have only a small number of corporate tax incentives in Ireland, such as the research and development tax credit and the three year start-up relief for small companies, and we ensure these are targeted at the creation of additional employment and at areas of innovation with a view to generating high value-added economic activity in the country. The Finance (No. 2) Bill contains only modest enhancements to corporate tax incentives, for example, the amendments to the research and development tax credit in section 21 have a cost of €5 million per annum.

Deputies are aware there are different ways of measuring the effective rate of corporation tax and there is no single internationally agreed comparative measure for that. In the absence of an agreed methodology, it is inevitable that differences will exist in comparative studies on effective tax rates depending on how the rate is calculated and the assumptions used in the calculation. That has been an issue that has been addressed by the committee in the past year. It is probably more accurate to characterise the calculation of effective rates as an art rather than a science.

There are a range of independent studies, however, that show the effective rate in Ireland is very close to the main headline rate of 12.5%. For example, the European Commission's Taxation Trends in the European Union 2013 indicates an effective corporation tax rate for Ireland of 14.4%. Another study carried out by PricewaterhouseCoopers, Paying Taxes 2014, which was published just last week, shows an effective rate for Ireland of 12.3%. I know some Deputies have challenged the validity of the assumptions used in previous versions of that latter study, and I am not claiming ownership of the figures, but they are examples of the way different methodologies can produce different results.

Regarding the Deputy’s request that I publish a report on effective rates, I would highlight to him that the Revenue Commissioners produce very detailed corporation tax distribution statistics each year. In response to the growing interest in this subject, Revenue published an explanatory note earlier this year to accompany the 2011 statistical report which contains data from 2010. These 2010 statistics indicate that aggregate net taxable profits, after taking account of various deductions, allowances, charges and reliefs, amounted to €41.215 billion while the total amount of corporation tax payable on these profits was €4.246 billion. This means that total corporation tax payable as a percentage of taxable profits was approximately 10.3% for that year. If we were to add all the corporation tax paid and divide that by the profits, that is the percentage at which we would arrive. That is the 10.3% effective rate it has produced. Revenue statistics for 2011, to be published shortly, show little change in the position, with a figure of 10.4% estimated for that year. While this percentage is lower than the 12.5% tax rate, this can be attributed to the availability of certain reliefs such as double taxation relief and the research and development credit used by many substantial businesses here. The 2010 statistics are available on Revenue’s website, while statistics for 2011 will be published on the website shortly.

Given the detailed material produced by the Revenue Commissioners and the need to allocate scarce resources most effectively, I cannot accept the Deputy’s amendment.