Ireland is more reliant on corporation tax than official data suggests

Irish Fiscal Advisory Council economist believes official Revenue figure is distorted

Corporation tax receipts are likely to be even more reliant on information and communication technology (ICT) and manufacturing groups than official data suggests, an economist with the Fiscal Council has warned.

Corporation tax receipts are likely to be even more reliant on information and communication technology (ICT) and manufacturing groups than official data suggests, an economist with the Irish Fiscal Advisory Council has warned, with any future trade tariffs having serious implications for Ireland's tax income.

While official data published by the Revenue Commissioners shows that about 70% of Ireland’s corporation tax revenues have come from manufacturing, ICT, and financial and insurance activities, Fiscal Council economist Brian Cronin believes this figure is distorted, and in real terms close to 90% of corporation tax revenue comes from ICT and manufacturing alone.

Mr Cronin made his comments in a blog post published on Wednesday on the Fiscal Council website. In the blog post, Mr Cronin said some firms, often classed as financial and insurance activities in official Irish data, are actually part of larger groups predominantly focused on manufacturing or ICT activity. 

"This matters when assessing how exposed Ireland’s corporation tax revenues are to tariffs and US trade policy changes more generally. So far, tariff hikes have focused only on goods, while ICT services have not been directly impacted — for now, at least," said Mr Cronin.

Mr Cronin said currently, Revenue classifies company subsidiaries based on the subsidiary’s own principal activity, as opposed to the activity of the parent group. Mr Cronin said for economic analysis, it is more appropriate to classify subsidiaries based on the principal activity of the parent group.

"Under this classification, corporation tax receipts in Ireland would likely be more highly concentrated in two sectors: manufacturing (mainly pharma) and ICT. Financial and insurance activities would play a smaller role," he said.

The United States Internal Revenue Service (IRS) bases its sectoral breakdown on the principal economic activity of the parent entity. 

"This alternative method of classifying subsidiaries paints a very different picture. 

The manufacturing and ICT sectors accounted for, on average, 87% of the corporation tax paid by large US-owned multinationals in Ireland between July 2016 and June 2023. 

"What’s more, the share attributable to financial and insurance activities is much smaller — at no stage does it exceed 10% of the total corporation tax paid by US multinationals here."

The Irish Fiscal Advisory Council is the independent statutory body that acts as Ireland’s budgetary watchdog. It comprises a five-member, part-time council appointed by the minister for finance and a full-time staff or "secretariat” that supports its work.

Last week, Fiscal Council chair and economics lecturer Seamus Coffey noted, following the publication of the budget, that the Government's own figures highlight the vulnerabilities within the public finances. 

Mr Coffey said if the Department of Finance’s estimates of ‘excess’ corporation tax were no longer available and the economy was to return to a more typical unemployment rate of perhaps 6%, then the budget documents show that the Government’s fiscal position would become an annual deficit of €16bn.

"No one is predicting that there will be a rapid fall-off in corporation tax or that the economy faces a significant employment shock. But the fact that the Government’s own figures show just how exposed we could be, is a worry," Mr Coffey said.