Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

At the time of budget 2024, corporation tax was projected to reach €24.5 billion for this year and €25.8 billion for 2025. The assumption in the budget fiscal projections is that the impact of the OECD BEPS agreement on revenues will not materialise until 2026.

The Government’s fiscal strategy is based on the assumption that a large proportion of the rise in corporation tax seen in recent years is windfall in nature, not linked to our domestic economy, and likely to be transient. That is why the Government is establishing two new long-term investment funds to make use of these temporary receipts to prepare for future challenges.

Changes to the international taxation environment are likely to have a negative impact on our corporate tax revenues over time. While negotiations in relation to pillar 1 of the OECD’s base erosion and profit shifting process are ongoing, the EU minimum tax directive, or pillar 2, was agreed in December 2022 and introduced for companies on 31 December last year. Due to the novel and separate filing system for pillar 2 returns, the first payments are not expected until 2026. While pillar 2 is expected to bring in additional revenue, the combined impact of both pillars 1 and 2 is estimated to result in a net reduction in Irish corporation tax receipts. Calculating this impact is a very difficult exercise. The budget 2024 projections include a technical assumption, with an estimated overall net cost of the introduction of both pillars of €2 billion relative to the baseline in 2026.

The pillar 2 introduction of a 15% minimum rate is now in effect. Pillar 2 provides for the adoption of a 15% minimum effective tax rate applicable to large companies with an annual turnover of over €750 million in at least two of the previous four years. All other companies will remain subjected to the statutory 12.5% rate in relation to trading income and a 25% rate in relation to non-trading income. I will update the Deputy further in my next response.

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