Corporate Tax Revenue

Today’s Eurointelligence bulletin predicts that any EFSF intervention for Ireland will involve an increase in the corporate tax rate.  Whether Ireland’s low corporate tax rate is good for wider Europe is certainly open to debate (a good recent paper is “Corporate Tax Harmonisation in the EU” by Bettendorf et al [Economic Policy, July 2010]) .

However, it is worth pointing out that Ireland collects a reasonable amount of revenue from this source (see table below).  It is certainly possible that short-term revenues would rise with an increase in the tax rate but it would be a shock to the multinational-dominated export sector. Since this sector is playing a key role in providing momentum to the economy, it is doubtful that this would be put at risk during a crisis situation.
Corp Tax

19 thoughts on “Corporate Tax Revenue”

  1. The fact our CT tax take is relatively high is an elasticity thing. Lower your price and you sell more of it. The age old international tension on competitive devaluations comes to mind. Ireland’s 12.5% CT rate is in effect a competitive devaluation of what it charges capital.

    I agree that to increase our CT rate would be an absolute disaster especially at this time and I note that not even SF or Labour support it.

    My view has always been that the real Celtic Tiger boom (before Anglo) was driven by the 12.5% CT rate, not by our superior skill base or our ability to speak English etc. etc.

  2. Hmmmm,

    Another apparent testable hypothesis thrown up by that comparison is that Ireland has not found some bliss point on a Laffer curve. Even if you proprly adjust the result as a percentage og GNP – taking the 3.8% in 2006 to 4.8% of GNP, it doesn’t greatly exceed the 4% of GDP OECD average for that year.

    Maybe we could levy higher rates of corporation tax without suffering a loss in revenue. We might also save large sums in pointless subsidies, save in abolishing the IDA, beenfit from the distorting and crowding out effects that we have created by setting ousrselves up as Western European tax haven.

  3. Perhaps we should indicate to the EU that we will not go into the EFSF if our corporation tax rate is threatened but rather we will go the traditional route of fighting for survival until we default. If the IMF won’t step in without the EFSF then we will have to take our medecine. This should then destroy our bonds before we run out of cash at which stage we could buy back senior debt at a steep discount using the NPRF liquidity. It would be very ugly for a while but it might be the better option in the long run. (we may of course chicken out at the end)

  4. If only we were actually getting 12.5%
    Anyone for a double Irish and bitter lemon? All the MNC’s with a high value on their intellectual property are paying.

  5. What is interesting about these figures is even at the low rate of tax of 12.5% the % of GDP is coming in about 3%.

    A few back of the envelope calculations come up with some scary numbers.

    The amount of GDP that is corporate profits ia about 25bn or about 15% of GDP. If we lose that or debt/GDP ratio will jump up another 10%.

    However the real case is probable much worse due to tax havens on R&D, buildings etc. and probably corporate profits are about 25% of GDP

    If we assume that 5 bn of that corporate profit GDP is genuine corporate cases not doing double Irish sandwichs this means that the 200,000 employed in the direct foreign multinational sector are generating about 100,000 of PROFITS per employee.

    Given that in most manufacturing industriesTURNOVER of 75k to 140k is seen as healthy all across the rapidly fragmenting western world are we trying to say that this 20 bn profit is really done in our fair isle. Pull the other one. If this was the case we would have every multinational in world queing up to get a part of the wondorous Irish workers and their pots of gold.

    This means that our productivity figures are just another statisical illusion.

    These figures just confirm what I have suspected for a long time. We are a big Jersey and a small pimple on the arse of Germany.

  6. @ BWII

    “I agree that to increase our CT rate would be an absolute disaster especially at this time and I note that not even SF or Labour support it.”

    Agreed, but if the EU is signalling that we must have similar tax levels as our neighbours, whilst at the same time claiming we can set our own tax rates and even maintain the corporation tax rate of 12.5%, does this mean that if we want to keep the 12.5% rate then the income tax rate will need be double our neighbours so that overall our tax level is broadly in line?

    And whilst changing our CT rate might be a disaster I wonder if we might be able to persuade the MNCs benefitting from a stable and supportive jurisdiction (and look at the lengths to which we are going to protect the 12.5% rate) to refrain from using their income haircutting diversions in the Netherlands and Bermuda? It’s just not cricket and we’re in a hole.

  7. So from the data, Ireland 1996,3.1% 2001,3.5% 2006,3.8% 2008,2.7%

    cant help feeling the big story in all this is the division between locally owned companies vs multinationals for the years provided.

    In 2006 at the height of the boom here its likely a much higher % was collected from locally owned companies than in 2008.

  8. @ Celtic

    Indeed. The key difference, though, is that we dont need to tap the markets for 6 months, which was the problem Greece had in the spring – they only had a few weeks of cash left over when their yields went ballistic. So we have time. Its about all we have, but at least its something.

  9. You can’t help but think though that by doing a good job the NTMA are justing handing out more rope.

    It does seem irrational though, kind of like the shorting of Anglo by those who had the inside track at the start of this mess. Though it’s hard to think there’s anymore horrible skeletons left in the closet.

    Maybe its all down to Greece and Portugal looking for money this week.

  10. Apologies for the over use of ‘though’ in the above. Too little sleep and coffee and too much work, are my excuses.

  11. May I add a little international perspective?

    A common view is that Ireland basically got away with undercutting the rest of the EU in tax rates for a long time through :
    a) in EU horse trading going along with almost anything in exchange for the tax rate being overlooked.
    b) being small enough to be overlookable by the Germans.

    They have been self-serving, cynical, tax-dumpers.

    In Ireland there is almost universal determination to retain the policy. In Europe there is an appreciation of this. There is also the a general view that it has gone one for long enough and doesn’t appear to be in Europe’s general interest.

    If it is to be retained in the context of a Eurobailout, the case will have to be made, and sold, that it benefits Europe as a whole.

  12. So we should continue to enable multinationals to scam citizens of other jurisdictions out of a tax take that is due to them? How much money do the other EU governments lose as a result of this? What about the US? And what about stopping things like the double Irish? It is immoral but it is good for our interests and so what if US or German citizens get poorer services or higher taxes as a result of this? We are worth it.

  13. What makes the double Irish structure work is the US tax system not the Irish system. The US have the power to change their rules any time they like – but of course changing those rules would mean that US companies would pay more tax internationally including in countries such as Ireland.

    Don’t be naive enough to assume that Ireland is the only EU country that engages in tax competition. Far from it. Ireland may be transparent about its effective tax rate, other EU countries are not and compete by way of less obvious base narrowing effects to ensure that multi-nationals pay very little tax.

  14. @ Joseph O’Toole

    If I was a European politician, official, or central banker likely to be involved in clearing the way for a bail out of Ireland, my reaction to ypur point would be “Oh yeah?” “Really!?” or “Pull the other one!”.

    If you are right, and there is real equivalence in terms of tax take, rather than the odd interesting example, the you or the Irish camp generally need to prove or demonstrate that it is indeed so. And quickly.

  15. @ grumpy

    Irish Corporation tax revenue as a % of GDP (as per the table above) is close to or below the OECD average depending on the year chosen. This is also the case when you look at corporation tax revenue as a % of total tax take. This is not the case for certain other EU countries with supposedly higher nominal corporation tax rates. The tax burden that multi-national companies face is a function of the tax rate multiplied by the tax base. I’m sorry if the facts don’t live up to the media/EU/development lobby spin. Some like to throw mud at so-called ‘low tax rate’ countries – it distracts from what they themselves are doing.

  16. Joseph,

    Thats about as clear as mud. I don’t have it in for Ireland and the 12 1/2% rate but a lot of people do.

    This is something minds were made up about years ago. If You can’t convince me without requiring my good will to try to work those points into something convincing, you might as well forget it – or head straight for the IMF.

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