Effective corporate tax rate ‘under 11%’

The effective corporate tax rate paid by companies in Ireland is just under 11%, according to an in-depth analysis prepared for the Department of Finance.

The department commissioned UCC economics lecturer, Seamus Coffey, to look at the eight measures available used to calculate the effective tax rate. These estimates range from 2.2% to 15.5%.

Mr Coffey found the two most accurate measures for calculating the effective corporate tax rate over the past 10 years was the CSO and Revenue. Based on CSO figures, firms had an average effective corporate tax rate of 10.9% over the past 10 years and a rate of 8.4% for 2012.

Using Revenue data, firms had an effective tax rate of 10.7% over the past 10 years and a rate of 10.4% for 2012. The difference between the figures for 2012 is that Revenue recognises corporate tax on capital gains and it also recognises writing off previous losses against current tax bills, whereas the CSO does not.

The headline corporate tax rate is 12.5%. However, the Irish tax regime has generated a considerable amount of controversy over the past number of years. US Senate hearings held last June into the tax affairs of Apple found that the tech giant had used Ireland to lower its tax rate on international earnings to just under 2%.

Mr Coffey said the figures prove that the Irish tax system has been “consistent over the past decade”.

In last October’s budget, the Minister for Finance Michael Noonan closed a loophole that allowed firms to be incorporated in Ireland but not tax resident in any jurisdiction.

Under international tax treaties, copper-fastened by international law, the Government can only apply corporate tax to profits that are generated through activities in Ireland.

Earlier this year, the Trinity College Dublin academic, Jim Stewart, estimated that the effective corporate tax rate paid by firms based in Ireland was 2.2% using data provided by the US Bureau of Economic Analysis. However, these figures are based on where firms are incorporated rather than the location of operations, noted the study.

The Institute of Chartered Accountants in Ireland has welcomed the report.

“The effective rate of tax in Ireland has been targeted by many critics of our corporation tax regime. Research such as this is good for our international reputation, and contributes in a positive way to the international debate on tax competition” according to director of taxation Brian Keegan.