Mr. Niall Cody:

I thank the Chairman for the opportunity to make a short opening statement. I am accompanied by Mr. Liam Gallagher, Ms Jeanette Doonan and Mr. Keith Walsh. The focus today is on chapter 20 of the 2016 report of the Comptroller and Auditor General which is entitled Corporation Tax Receipts. While chapter 20 does not contain any recommendations for Revenue, in the time available, I will provide a short briefing on corporation tax receipts. At the outset I want to draw attention to my obligation to uphold taxpayer confidentiality as provided for in section 851A of the Taxes Consolidation Act 1997 which prevents me from commenting on the tax affairs of any individual or entity.

The Comptroller and Auditor General's 2016 report and Mr. Seamus Coffey’s review of the corporation tax code, which was published in September 2017, both contain useful analyses of recent trends in corporation tax receipts. Both reports also highlight the volatility in corporation tax receipts over the past decade or more. Over recent years, Revenue has sought to contribute to the analysis of trends in corporation tax receipts by publishing a number of research and analysis papers containing statistical information and aggregate data from corporation tax returns and payments.

Since 2015, there has been a significant increase in corporation tax receipts. In 2015, net receipts increased by 49% to €6.87 billion and this upward trend continued into 2016, when €7.35 billion was collected. Corporation tax receipts to the end of October 2017 are €5.42 billion, which is 4% ahead of target. While volatility in this area makes forecasting difficult, the Coffey review points to the level shift in corporation tax receipts since 2015 as being sustainable over the medium term to 2020.

In an effort to facilitate better understanding of the recent increases in corporation tax receipts, Revenue has analysed the available statistical information, including corporation tax returns and receipts. In 2016, Revenue published a paper analysing receipts in 2014 and 2015 based on a review of available tax return and payment data. In April 2017, coinciding with the publication of our 2016 annual report, Revenue published a research paper containing an analysis of 2015 corporation tax returns and payments made in 2016. Both papers have been provided to the committee as part of Revenue’s briefing on the Comptroller and Auditor General's report.

The analysis for 2015 is based on a review of corporation tax returns for accounting periods ending in the calendar year 2015, the majority of which were filed towards the end of 2016. Revenue’s analysis of 2015 returns revealed that the increase in corporation tax receipts in that year was attributable to a number of factors, the main one being an increase in trading profits across nearly all sectors. In 2015, trading profits increased by 51% to €48 billion. However, some of that increase was offset by increased claims for reliefs, including capital allowances and research and development tax credits. There was a significant increase in claims for capital allowances in 2015, with claims relating to intangible assets increasing by over €26 billion. The number of companies paying corporation tax was another contributor to the increase in receipts in 2015. In 2015, some 39,900 companies paid corporation tax, as compared to 35,700 companies in 2014. Companies that paid tax in 2015, but not in 2014, accounted for a €470 million increase in 2015 corporation tax receipts. Generally speaking, companies newly paying corporation tax are either start-up businesses, or companies returning to a profit-making position. Over 7,900 companies that carried forward losses into 2014 did not carry any losses into 2015.

While this is evidence that some companies have fully used up their legacy losses from the economic downturn, more than €200 billion of trading losses were carried forward at the end of 2015 and will be available for the relevant companies to use against income of the same trade in future accounting periods.

In April 2017, Revenue published an initial analysis of corporation tax payments in 2016. The majority of these returns were only recently filed and it will take some time to analyse the data in depth. Revenue will analyse the returns to provide further details on the factors underlying the payment trends in 2016 and this analysis will be published in April 2018.

I will now address the source of corporation tax payments in 2016. As has been highlighted by the Comptroller and Auditor General, by the Coffey review and by Revenue’s own published research papers, there continues to be a high concentration of corporation tax receipts from a small number of large multinational enterprises. Revenue records show that in 2016, more than 80% of total corporation tax receipts came from companies dealt with by Revenue’s large cases division and 37% of total corporation tax receipts were paid by the ten largest corporation taxpayers in the State. This is a lower level of concentration than in 2015, when the top ten tax-paying companies accounted for 41% of total corporation tax payments.

The Comptroller and Auditor General's report includes an examination of the effective rate of corporation tax in Ireland. There is no internationally-agreed standard for calculating effective rates of tax. In 2014, the Department of Finance published a technical paper on effective rates of corporation tax in Ireland, which identified eight different methodologies that are used to calculate the effective rate of tax, and set out the two most appropriate methods to measure the effective rate of Irish corporation tax. One of these, the tax due as a proportion of taxable income, is identified as appropriate to measure the effective rate of Irish corporation tax on the total profits that are subject to Irish tax. Consequently, this is the measure used by Revenue. The most recent year for which information is available from which to calculate the effective tax rate is 2015. The effective overall corporation tax rate for 2015 calculated by Revenue is 9.6%. The figure of 9.8% in the Comptroller and Auditor General's report was based on provisional data available earlier in the year and I can confirm that the final figure is 9.6%.

As noted in the Comptroller and Auditor General's report, the average effective tax rate for the 100 companies with the highest amounts of taxable income in 2015 was 9.3%. Of the top 100 companies, 13 had an effective Irish tax rate of less than 1%. Each of these 13 companies was either in receipt of large amounts of foreign dividends, in respect of which double tax relief was available to offset Irish tax payable, or was a claimant of research and development tax credits. I will briefly explain the impact that both of these claims have on the effective Irish corporation tax rate.

On foreign dividends, Ireland applies a credit system to ensure that foreign-source income, including foreign dividends, is not doubly taxed. This means that an Irish-resident company in receipt of foreign dividends is chargeable to Irish tax on that income at either 12.5% or 25%, depending on the country from which it is paid and whether the dividends are paid out of trading profits. Where certain criteria are met, however, a credit will be available against Irish tax in respect of any foreign withholding taxes applied in the country of payment, as well as in respect of foreign tax suffered on the profits out of which the dividend has been paid. In certain circumstances, what is called an additional foreign credit may also be due. This is a credit that Ireland introduced in 2013 in response to a decision of the Court of Justice of the European Union that foreign-source dividends should not be subject to tax at a higher level than nationally-sourced dividends. In summary, a company in receipt of substantial foreign dividend income will have substantial taxable income. However, the tax due element of the effective rate calculation only takes account of the Irish tax due, as reduced by the credit for foreign tax, and this results in a low effective tax rate for the company in Ireland. When foreign taxes are factored in, the company will have paid significantly higher rates of tax on its income. Our records show that if the effective tax rate of the relevant companies with substantial foreign dividend income is calculated before the application of a double tax credit, each company would have an effective tax rate of 12% or more.

The research and development tax credit is a targeted measure designed to encourage companies to undertake high-value added research and development activity in Ireland. A report published by the Department of Finance with budget 2017 states that the research and development tax credit is responsible for 60% of the research and development being conducted in Ireland. Research and development tax credits, which are available at the rate of 25% of relevant expenditure on research and development activities, can be offset against Irish corporation tax payable and, in certain circumstances, may give rise to payable credits. Where claimed, they will reduce a company’s corporation tax liability and result in the company having a lower effective tax rate. As the committee is aware, the Comptroller and Auditor General reported on the operation of the research and development credit in his 2015 report and the committee examined its operation with me at my last appearance before the committee on 1 June last. In summary, if the effective tax rate of each of the 13 companies is calculated before taking account of double tax relief and the research and development tax credit, each would have an effective tax rate in excess of 12%.

Since the publication of the Comptroller and Auditor General's report, and as the committee is aware, certain information and allegations originating from the so-called Paradise Papers, have emerged. As the committee will be aware, yesterday evening, I addressed these issues in detail before the Committee on Finance, Public Expenditure and Reform, and Taoiseach, at its invitation. A copy of my opening statement to that committee is available for members' further information.

I thank the committee and I will answer any questions raised by members on these issues, subject, of course, to taxpayer confidentiality constraints.