Ireland faces an ‘unacceptable level of risk’ to its tax base because of the ‘volatile and highly concentrated nature of corporation tax receipts’, and the government should consider moves to address this, an investigation by the public accounts committee (PAC) has warned.
PAC’s report, which follows on from a review of corporation tax carried out by the comptroller and auditor general (C&AG), found that corporation tax accounted for 15% of total tax receipts in 2016, but says this tax has displayed considerable volatility in recent years. Currently, 70% of all corporation tax is paid by the top 100 companies and 37% by just 10 companies.
Revenue statistics show that out of the 2017 top 100 companies, there were 51 US companies paying €4.25bn in corporation tax and a small number (less than 10) UK companies paying €128m. There were just over 10 Irish companies in this category, paying €370m.
In 2015, the average effective corporation tax rate applying to all companies was 9.8%; 13 of the 100 companies with the highest taxable income had an effective tax rate of less than 1%, reflecting the use of significant tax credits and reliefs, in particular double taxation relief and research and development tax credits.
PAC chairman, Seán Fleming, said: ‘This report draws attention to the highly concentrated nature of corporation tax receipts. The PAC finds that this represents an unacceptable level of risk to the sustainability of the corporation tax regime and calls on the Department of Finance to carry out a review of the corporation tax system and bring forward proposals to address the risk associated with its highly concentrated nature.’
The committee’s report is critical of the Revenue’s failure to provide accurate details on PAYE paid by participators in ‘close’ companies, which make up the majority of the majority of the 175,000 companies incorporated in Ireland. These are Irish resident companies which are under the control of five or fewer participators (more generally these are the shareholders) or under the control of any number of shareholders who are directors.
The committee said it is not satisfied that Revenue can demonstrate that the application of close company rules is achieving its intended purpose. Revenue should determine and gather the appropriate information required to assess the effectiveness of the close company rules.
There was also concern about the lack of detail from Revenue on the breakdown of losses carried forward by companies.
PAC is recommending that Revenue should carry out an age analysis and put in place procedures to analyse losses carried forward to identify those relating to trading losses and those relating to unused capital allowances.
It also suggests that the Department of Finance should consider the introduction of a 10-year time limit or sunset clause and/or other restrictions in respect of losses carried forward. This measure would help to give greater priority to the sustainability of corporation tax receipts on an annual basis.
The PAC report on receipts from corporation tax is here.
Report by Pat Sweet
