Corporation tax hike to 20% could leave €14bn hole in public finances by 2030 

Parliamentary Budget Office estimate says multinationals would likely seek to register their income in other countries

The PBO said corporation tax rates 'influence the profit allocation and international tax strategies of multinational corporations'.

Increasing corporation tax on the largest multinationals to 20% would result in €14bn less being taken in annually by 2030, as companies will likely seek to register their income in other locations, a new estimate by the Parliamentary Budget Office (PBO) has found.

The current corporation tax rate stands at 12.5%, but this increases to 15% for companies with a turnover of €750m or more. Ireland signed up for the OECD Two Pillar agreement in October 2021, which set the minimum effective corporation tax rate of 15% for larger companies and it came into effect at the end of 2023.

Following a request from People Before Profit TD Paul Murphy, the PBO conducted an analysis and estimated the annual cost, from 2026 to 2030, of increasing the effective tax rate of corporation tax in Ireland to 20% for large enterprises generating revenues more than €750m per year.

As part of its analysis, the PBO assumed foreign multinational companies would continue to account for nearly 86% of total corporation tax between 2026 and 2030, and it also used the Department of Finance’s forecast for corporation tax receipts over the same period.

If the tax on companies generating revenues more than €750m a year was increased to 20%, and all the companies subject to the revised rate opted to keep all their existing tax arrangements in Ireland, the PBO estimates it would generate just under €8.5bn in additional revenue in 2026, increasing each year to just over €11bn by 2030.

However, the PBO said corporation tax rates “influence the profit allocation and international tax strategies of multinational corporations".

It pointed out the US’s corporate tax rate now stands at 21% which led companies like Alphabet and Meta shifting to a “more US-centric profit allocation strategy”.

Ireland’s corporation tax revenue is highly concentrated among a small number of foreign companies, particularly US companies.

It noted other countries such as Finland have a 20% CT rate and a much smaller presence of US multinationals.

“Therefore, to provide a more accurate cost estimate, we model a behavioural response where a significant portion of Ireland’s current corporate tax base shifts elsewhere with the introduction of a 20% effective corporation tax rate. We implement this by stripping out the ‘windfall’ element of the tax base for foreign multinationals corporations”, the PBO said.

After accounting for these behavioural changes, the PBO estimates just over €9bn in corporation tax would be lost in 2026 if the rate for larger companies was increased to 20%. This increases every year to just over €14bn by 2030.

The PBO does caveat the analysis, saying there is a “high behavioural uncertainty” as it relates primarily to the reaction of larger companies once effective the tax rate is increased to 20%.

“It is reasonable to expect that changes in multinational corporation activities would also impact the economy and other tax streams, particularly income tax receipts. We only model the fiscal impact through the corporate tax side,” it said.

So far this year, up to the end of September, the exchequer has taken in €20bn in corporation tax, however, that falls to €18.2bn when the proceeds from the Apple tax case ruling from September 2024 are excluded.