By Pádraig Hoare
An “unacceptable risk” to the Irish economy exists because of the “volatile and highly concentrated nature” of corporation tax receipts, with more than a third being paid by just 10 companies.
That was one of the major findings of the Public Accounts Committee (PAC) report on corporation tax, which showed three sectors — financial and insurance, manufacturing and pharmaceuticals, and IT and communications — account for around 70% of the total corporation tax receipts.
In 2016, 37% of corporation tax receipts were paid by the top 10 taxpayers, the report,- using data from the Comptroller and Auditor General, found.
“Such a concentration represents a serious risk to the exchequer and the committee wished to understand fully this risk and how it might be best dealt with,” PAC chairman Seán Fleming said.
The report recommended the Department of Finance carry out a review of the corporation tax system and bring forward proposals to address the risks associated.
It said in relation to losses carried forward by companies, which allows firms to write off losses against tax bills in the future, Revenue should “put in place procedures to analyse losses carried forward to identify those relating to trading losses and those relating to unused capital allowances”.
The carry forward of losses totalled just under €15bn in 2016 by around 26,000 companies, reducing corporation tax receipts by €1.9bn, the report said.
“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,” PAC recommended.
A detailed analysis of double taxation relief should be carried out, with corporation tax receipts reduced by €948m in 2015, the report said.
“Ireland’s double taxation agreements with countries that do not provide for an exchange of information should be identified. The Department of Finance should ensure mechanisms are in place to verify any claims for double taxation relief made in Ireland by companies that are non-resident in Ireland,” it added.
Tax around real estate investment trusts, so-called Reits, need further scrutiny, according to the committee.
“The high percentage of Irish real estate being owned by non-Irish and non-EU institutions, who may be liable for tax in other jurisdictions, poses a risk to Ireland’s tax base. The Department of Finance should carry out a review of the Reit regime.”