Brendan Griffin (Kerry South, Fine Gael)
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50. To ask the Minister for Finance his views that the Exchequer could derive greater benefits through direct taxation from multinationals that are based here; his views that we could extract more without crossing a tipping point after which jobs and revenue are lost, if so, the options available; and if he will make a statement on the matter. [18566/14]

Michael Noonan (Limerick City, Fine Gael)
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I would like to assure the Deputy that the need to balance the competitiveness of our corporation tax offering for mobile foreign direct investment while ensuring the maximum benefits to the State is a matter that is considered on an on-going basis.

The importance of maintaining the standard 12.5% rate of corporation tax to Ireland's international competitive position in the current climate must be borne in mind. Ireland, like other smaller member states, is geographically and historically a peripheral country in Europe. A competitive corporate tax rate is a tool to address the economic limitations that come with being a peripheral country, as compared to larger core countries. Ireland's corporation tax rate plays an important role in attracting foreign direct investment to Ireland and thereby increasing employment here.

As to how successful we are at getting this balance right, the Deputy may wish to note that the revenue generated by Corporation Tax in Ireland is broadly line with the EU average.  In 2013 we collected just over €4.2bn which is 11.3% of overall Exchequer tax revenue and equivalent to 2.6% of Gross Domestic Product ('GDP').

Any increase in the 12.5% rate could unfortunately result in a behavioural change on the part of taxpayers and potentially have a negative impact on economic growth as a result.  In relation to the "tipping point" referred to by the Deputy, I would draw attention to an OECD multi-country study "Tax Effects on Foreign Direct Investment - Recent Evidence & Policy Analysis", which found that a 1% increase in the corporate tax rate reduces inward investment by 3.7% on average.  On this basis, it would take only a 2.5% increase in the rate (to 15%) to decrease Ireland's inward investment by nearly 10%. This assumes the average applies across the board but in fact the effect is likely to be more extreme for Ireland.  In another report by the OECD, "Tax Policy Reform and Economic Growth", corporate taxes were identified as the tax which are most harmful to economic growth prospects.   These are just examples of the types of international reports my Department has identified as relevant when looking at the relationship between tax, foreign direct investment and job creation.

Further, it is worth saying that the certainty around the rate of Irish corporation tax is one of its biggest strengths, and it would be difficult to justify an increase in the context of Ireland's stated position that we will not change our corporation tax strategy. Even a marginal change in the rate of corporation tax would undermine both our long held stance on this issue and the certainty of business, domestic and international, in our resolve to maintain that position.

As I said at Budget time, the 12.5% is settled policy and the Government remains 100% committed to this rate.

(2008) OECD Tax Policy Studies No. 17

(2010) OECD Tax Policy Studies No. 20