Written answers

Thursday, 26 June 2014

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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61. To ask the Minister for Finance his views on Ireland's international reputation due to the effective rates of corporation tax being paid here by some large firms; his views that the Irish Exchequer could benefit better from corporation tax without moving into diminishing returns; and if he will make a statement on the matter. [27686/14]

Photo of Brendan GriffinBrendan Griffin (Kerry South, Fine Gael)
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62. To ask the Minister for Finance his views on the way of increasing Ireland's effective corporation tax take without hunting firms out of the economy; how far from that tipping point is the current tax regime positioned; and if he will make a statement on the matter. [27687/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 61 and 62 together.

My Department recently published a Technical Paper on Effective Rates of Corporation Tax in Ireland to provide clarity to the Dáil about the seemingly conflicting figures and methodologies.  The Department commissioned an external and independent academic to ensure that this piece of work was as objective as possible.  This report is published on the Department's website and can be viewed at the following link:

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Based on data from the Central Statistics Office (using the "Net Operating Surplus") and the Revenue Commissioners (using the "Taxable Income"), this report highlighted that since 2003 the effective corporate tax rate has averaged 10.9% and 10.7% respectively. While this percentage is lower than the 12.5% headline rate, this can be attributed to the availability of a small number of reliefs such as the R&D tax credit, which was the subject of a comprehensive review last year and which was found to give value for money for the Irish taxpayer.

The extremely low effective rate figures that are sometimes quoted and attributed to Ireland are based on a flawed premise.  The figures are running together the profits earned by group companies in Ireland and in other jurisdictions and incorrectly suggesting that Irish tax does or should apply to both. Ireland cannot tax profits that are properly attributable to other jurisdictions.  The ability of some multinationals to lower their world-wide rate of tax using international structures reflects the global context in which Ireland and indeed all countries operate. The best way to effectively address this issue is for countries to work together at the international level and the appropriate action is being considered in this regard by the OECD as part of their project on Base Erosion and Profit Shifting and Ireland is participating fully in this process. Unlike some other countries who have a high headline rate of corporation which is then supplemented by a high number of tax reliefs which reduce the overall rate of tax paid, the approach in Ireland is transparent. We have a competitive headline rate of corporation tax which is applied to a broad base.

As to the question of increasing the corporate tax take, I would remind the Deputy of my answer to his question in April this year, where I gave assurances 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 by my Department and others 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, I would highlight to the Deputy that the revenue generated by Corporation Tax in Ireland is broadly in 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 firmly stated position that we will not change our corporation tax rate. 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.

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