Dr. Brian Keegan:

To reduce the volume of taxable profit, there are relatively few reliefs in the Irish corporation tax code. One of the reliefs, to which Deputy Catherine Murphy alluded earlier, is based on losses being carried forward. Where a business has incurred losses in previous years, it can carry those losses forward and offset them against the taxable profits in the current period or a future period. That is certainly a contributing factor. There are also provisions whereby if a company engages in capital investment like buying new plant or machinery or intellectual property - things like copyrights, patents, trademarks and so forth - it can use the money expended on those capital assets to reduce the amount of profit that is subject to tax. That is above the line, so to speak, and one comes up with the taxable figure and tax is charged at 12.5% or 25%, as appropriate. However, below-the-line credits can arise, mainly in two areas. They can arise in terms of the indigenous tax credit for research and development, which is a huge factor in the Irish tax system. It is very much tied up with the notion of intellectual property and therefore, by definition, it is tied up with those companies which tend to make the most money because of their economic structure. We also operate a system of tax credits whereby if holding companies in Ireland are receiving a dividend from abroad, a credit attaches to those dividends by virtue of foreign tax paid by foreign subsidiaries, for example. That would reduce the overall effective rate.

There are factors above the line that reduce the actual taxable profit and there are factors below the line which, after the tax is calculated, reduce the amount of tax payable. Both sets of factors influence the so-called effective rate.