Foreign multinational corporations accounted for 82 percent of corporate tax revenue last year, according to a new Treasury Department report.
The report warns that the government’s “potential over-reliance” on corporate tax revenues poses a “significant risk” to public finances.
Corporate income tax brought the treasury a record € 11.8 billion in 2020, accounting for 20 percent of tax revenue, compared to just 12 percent a decade ago.
The ministry’s report found that corporate tax revenues have increased nearly 70 percent over the past five years and that the top 10 largest companies accounted for just over half of all corporate tax revenues last year.
“The potential for excessive reliance on excess or unexpected corporate tax revenues has been identified as a risk to public finances since the prolonged growth phase began five years ago,” it said.
Although trade tax revenues rose sharply in the past year, the year-end figure was around 500 million euros below the revised forecast published in the 2021 budget, according to the report.
“This resulted from a larger-than-expected deficit in October that, while not repeating itself for the remainder of the year, highlighted the volatility and unpredictability of corporate tax revenues generated by a handful of large, highly-dominated profitable multinational corporations,” it said.
“Corporate tax revenues have given public finances a welcome boost, but at the same time highlighted the risks associated with concentrating revenues on a relatively small number of large foreign payers,” the report said.
Resilience to income tax
It also warns that international tax reforms could reduce Ireland’s corporate tax base by up to € 2 billion, while the loss could be larger depending on the deal.
Ireland has yet to join the international tax reforms proposed by the Organization for Economic Co-operation and Development (OECD), which provide for a global minimum tax rate of at least 15 percent, which the government rejects here. Ireland’s corporate tax rate is 12.5 percent.
In its report, the ministry found that total tax revenue fell by just 3.6 percent in the past year “despite a one-time global pandemic”.
This contrasts with a decline of almost a third during the 2008 financial crisis. Income tax resilience – the largest source of tax revenue – is a key factor in that resilience, it said.
While employment fell sharply last year, the shock to the labor market has been focused on sectors that are relatively low in income taxes, the report said.
“The resilience of aggregate tax revenues in 2020 meant the government had greater resources to fund the necessary policy interventions to support households, businesses and the health sector during the pandemic,” it said.
“In other words, the Irish state did not have to borrow as much money as other countries because our tax system was more heavy-duty,” it said.
Treasury Secretary Paschal Donohoe released the ministry’s report, saying the Covid-19 pandemic and related public health measures had a relatively subdued impact on overall tax revenues – relative to the impact on the labor market – mainly due to the resilience of income tax.
“This is due to the progressiveness of the income tax system and the sectoral nature of the Covid shock, with the most affected sectors being dominated by workers at the lower end of the wage scale and therefore largely outside of income tax.” Net, “he said.