Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I have had detailed public discussions with the Deputy on this issue on a number of occasions, most recently at the Joint Committee on Finance, Public Expenditure and Reform on Thursday of last week. He will also recall that the issue of effective tax rates was discussed at length on Committee Stage of the Finance Bill last November. In view of the significant confusion around the issue, it was agreed at the time that my Department would prepare a report on the matter to be submitted to the Oireachtas finance committee by the end of the first quarter this year. This report is being prepared and will likely be published on completion.

It is important to clarify that there are two separate scenarios that are often confused in discussions on the effective rate of corporation tax. The first is the global rate of tax paid by multinational companies which operate across a number of jurisdictions. This is a blended rate which takes into account the amount of tax charged not only in Ireland but across all of the countries in which a company trades. The extremely low effective rate figures that have been quoted in the past week and attributed to Ireland are based on a flawed premise. They are estimated by dividing the amount of Irish tax paid by a total profit figure that includes substantial profits made by companies not tax resident in Ireland. They are running together the profits earned by group companies in Ireland and other jurisdictions and incorrectly suggesting Irish tax does or should apply to both. Ireland cannot tax profits properly attributable to other jurisdictions. 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 effectively address this issue is for countries to work together at the international level. Appropriate action is being considered in this regard by the OECD as part of its project on base erosion and profit shifting, in which Ireland is participating.

The second issue is the effective rate of tax applying in individual countries. Clearly, the domestic rate of tax paid in Ireland is within the control of the Irish tax system and Ireland is responsible for the amount of Irish corporation tax charged here. I re-emphasise that all companies operating in Ireland, domestic businesses and multinationals, are liable to corporation tax at the 12.5% rate on the profits generated from their trading activities here. A higher rate of 25% 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 have a high headline rate of corporation tax which is then supplemented by a high number of tax reliefs which reduce the overall rate of tax paid. By contrast, the approach in Ireland is transparent in that we have a competitive headline rate of corporation tax which is applied to a broad base. We, therefore, have only a small number of corporation tax incentives in Ireland and ensure these are specifically targeted at and focused on the creation of employment and areas of innovation.

There are different ways of measuring the effective rate of corporation tax once account is taken of such reliefs and there is no single internationally agreed comparative measure in this regard. As the quality of debate on the issue shows, it could really be characterised as more of an art rather than a science. There are a range of independent studies on this issue and the Deputy will shortly have a comprehensive report that will set out an analysis of the different figures in the public domain. In the meantime, I see no benefit in repeating the same debate we have had, quoting different figures at each other. However, in response to the growing interest in the subject the Revenue Commissioners now publish an additional explanatory note with their annual statistical report. The 2012 revenue statistical report which refers to 2011 data indicates that aggregate net taxable profits, taking account of various deductions, allowances, charges and reliefs, amounted to €40.1 billion, while the total amount of corporation tax payable on these profits was €4.2 billion. This means that total corporation tax payable as a percentage of taxable profits was approximately 10.5% for 2011. While this percentage is lower than the 12.5% rate, this can be attributed to the availability of certain reliefs such as the research and development credit which was the subject of a comprehensive review last year and which was found to give value for money for the taxpayer.

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