Ireland ranks sixth in World Bank and PwC's ease of paying taxes report

It was great to see so many Irish nominations for Oscar awards last week. Most professions have their honours systems, accolades for professional people granted by their peers to honour and recognise achievement.

Many awards in the arts are made following what is, by definition, a highly subjective process.

It is not possible to be fully objective if awards are to be granted for disciplines like acting and literature, or accolades are to be handed out for musicianship or cookery.

The judging panels or voters will have a view, but so will everyone else.

What are we to make of apparent success in another area of Irish endeavour last week; that we are apparently among the world leaders in the ease for business of paying taxes?

A World Bank/PwC report had identified the top 10 rankings for European countries on ease of paying taxes are, in order: Ireland, Denmark, Norway, the UK, Finland, Switzerland, Luxembourg, Malta, the Netherlands and Latvia.

On the world stage we rank sixth, following Qatar, United Arab Emirates, Saudi Arabia, Hong Kong and Singapore.

League tables, especially league tables where you rank fairly highly, are all well and good.

However, the World Bank and PwC are serious organisations with serious resources to map and model these types of finding.

These “paying taxes” rankings don’t have the same history behind them as the Oscars but they have been in existence for 10 years.

Over that period the techniques used in arriving at the rankings have been refined to make them more objective.

What the report does is to use a model business, and then work out how much tax that model business might pay in every country surveyed.

It also attempts to work out how much time that model business might be expected to spend filling out forms and generally dealing with the local tax office, along with how frequently tax payments are made.

This stylised model business is a company operating in one of the two largest cities in the country in question, has 60 employees (four of whom are managers), has a gross margin of 20% on its sales and is owned locally.

The model goes into quite a level of detail – this model business, for instance, has two trucks. Somewhat unexpectedly, its business is the production and sale of ceramic flowerpots.

To be fair this rather mundane activity is at the centre of a global report because it is ordinary.

Using a model company which produced, say, alcohol or tobacco products which in most countries have their own special tax regime could distort the overall results.

An important message coming out of this report is that the cost of tax for businesses is not just the tax itself.

Time costs for employees and funding and cashflow costs in making tax payments are important as well.

It’s almost 100 years ago since a member of the UK House of Lords observed, on hearing a particularly awkward appeal case, that income tax should only tax income, and not tax the brain as well.

That same principle continues to apply.

Ireland scores well on the World Bank/PwC register not just because of the low Corporation Tax rate but also because tax administration here is relatively straightforward.

Of course, getting your tax right is hard in Ireland but not in comparison with the world in general.

Straightforward in administration often implies straight as well— not corrupt or unfairly onerous.

In my experience, businesses locate here partly because of tax rates.

A straightforward system is not an incentive in the same way.

Nevertheless, the existence of any inept or corrupt administrative regime (tax or otherwise) is a strong factor when it comes to companies deciding not to locate in a particular territory.

Being an easy location for businesses to pay tax will never win the same public interest as an Oscar nomination.

Just, though, as the Oscar nominations are good news for the Irish Film Board, the current Irish business tax ranking is something worth having.

Because the 12.5% rate of Corporation Tax is now regarded as “settled policy” in official circles, any slip in future years would be because we have started to make life more complicated for Irish business.

That is worth guarding against, even if there is no Oscar.

Brian Keegan is director of taxation with Chartered Accountants Ireland


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