The high proportion of tax revenue coming from corporation tax represents “a significant risk to the public finances,” according to a report published by the Department of Finance today.
Last year, corporation tax accounted for 20% of tax revenues compared to an average 12% a decade ago.
€11.8 billion was collected in corporation tax last year – that’s the highest amount on record.
It’s also two and a half times greater than the amount collected in 2014.
Ten firms, all multinationals, accounted for just over half of the corporation tax collected in 2020.
Foreign multinationals pay 82% of the corporation tax collected.
The Department’s Annual Taxation Report says the current reforms under negotiation at OECD level could result in Ireland’s corporation tax take being reduced by €2 billion.
However, the report notes it could be higher.
The report also notes that resilience income tax receipts were the man reason that the tax take only declined by 3.5% last year, despite the pandemic.
It was the first decline in tax income in a decade.
Minister for Finance Paschal Donohoe said the Covid-19 pandemic and associated public health measures had a relatively muted impact on overall taxation receipts, “relative to the impact on the labour market – largely due to resilience in income tax, which fell only 1% year-on-year.”
“This is attributable to the progressivity of the income tax system and the sectoral nature of the Covid shock, with the most affected sectors dominated by employees towards the lower end of the wage scale and that were, as a result, largely outside the income tax net,” Minister Donohoe said.
Peter Vale, Tax Partner at Grant Thornton Ireland said the report notes that the progressivity of our income tax regime means that we are dependent on a relatively small cohort of income tax payers for the bulk of our income tax receipts
“A broadening of the tax base would bring more taxpayers within the tax net and reduce the shock impact of an outflow of high income earners, for example as a result of FDI outflow,” he said.
Mr Vale said while a broadening of the income tax base has been noted before, it is likely to be “politically challenging” as it would bring more taxpayers within the tax net.
“As a result, despite its merits, there has been little action to broaden the tax base in recent years,” he added.
He said the report also notes the threat to future corporation tax receipts as a result of further global tax reforms, which would see some profits diverted to other jurisdictions.
“It is incredibly difficult to predict the impact of the proposed global changes on our future corporate tax receipts, not least because much of the important finer detail has yet to be agreed.
“While not noted in the report, it is also possible that corporate tax receipts might increase in the future, if for example we are obliged to increase our corporate tax rate to 15% and there is no significant outflow of FDI as a result.
“The expiration of certain intellectual property tax allowances could also see Ireland’s corporate tax revenues increase in future year,” said Mr Vale.