IFAC has published a new working paper from Eddie Casey on Ireland’s output gap. It is available here.
Multinationals make very real profits from charging for the use of their IP. In 2015, the trading profit made by multinationals in Ireland on their IP shot up by €26bn. This was completely offset by capital allowances they received - basically reducing their taxable profit on that to close to zero. To put it in perspective if we had allowed just 80pc of that to be set against capital allowances, we could have taxed 20pc of it at 12.5pc. It could have yielded around €650m in tax.
The measure is linked to the recently published Review of Ireland’s Corporation Tax Code and Richard Curran’s piece throws light on most of the key issues, except one: the link to Ireland’s contribution to the EU budget. This is referenced in paragraph 9.3.11 of the review:
Figures from the Revenue Commissioners and Tancred (2017) show that there was a €26 billion increase in intangible-asset related gross trading profits in 2015. This was offset by an increase in the amount of capital allowances for intangible assets of a similar scale. These gross trading profits are included in Ireland’s Gross National Income but the use of capital allowances results in a much smaller amount being included in the taxable income base for Ireland’s Corporation Tax. Given Ireland’s contribution to the EU Budget is calculated by reference to Gross National Income, this increase in profits has an impact.
Assessing this impact was beyond the scope of the review but is something which the seven-page note linked below attempts to address. With lots of moving parts precision is difficult to achieve but the broad elements of the issue should hopefully stand out.
Update: Here is a bullet-point summary
- In 2015 intangible-asset-related gross trading profits of multinationals operating in Ireland increased by €26 billion.
- In the same year claims for capital allowances related to expenditure on intangible assets increased by €26 billion.
- No Corporation Tax is due on the gross profits offset by capital allowances
- Using estimates from the Department of Finance implies that these figures have risen to around €35 billion for 2017.
- These untaxed profits are included in Ireland’s Gross National Income which adds about €200 million to the country’s contribution to the EU budget.
- A cap on the amount of capital allowances that can be used in a single year is to be introduced for new claims for capital allowances on intangibles.
- Based on patterns for the past two years the Department of Finance forecast that this will result in €150 million of additional Corporation Tax being paid in 2018.
- The Revenue Commissioners figures for 2015 and the Department of Finances estimates of the impact of recent onshoring imply that intangible-asset-related gross trading profits are expected to be around €40 billion in 2018 (with a further €36 million added to the EU contribution).
- If the cap applied to all claims, existing and new, then the additional Corporation Tax to be collected in 2018 could be up to €1 billion using the 2015 figure published by Revenue and estimates from that time used by Finance.
- If companies who are expected to move IP here in future years are happy to pay the tax now why doesn’t the same apply for companies who already have IP here?
From an Irish perspective the most significant announcement made yesterday by Commissioner Vestager was in relation to Amazon not Apple. The Commission announced that Luxembourg had granted €250 million of illegal sate aid to Amazon. The structure used by Amazon in Luxembourg is close to a replica of that used by US companies in Ireland. It is a double-luxembourgish. Here is the Commission’s description of the Amazon structure:
The Fiscal Council’s offering in advance of Budget 2018 can be read here.
Last year we were scrambling around in response to the impact of the 26.3 per cent real GDP growth rate that was the headline from the 2015 National Income and Expenditure Accounts (NIE). So where do we stand one year on? Long post, with too much mind-numbing detail, below the fold.
Earlier in the week I contributed to a session at the MacGill Summer School on threats to the economy. My speaking notes for the presentation are here though delivery may have been slightly different.
We can build 40,000 houses a year, motorways between our regional cities, urban rail connections in the capital, and the roll-out of broadband across the country. We can reduce taxes, increase social transfers and public sector pay. We can spend all the benefits of the surge in Corporation Tax, ultra-low interest rates and the proceeds from the sale of the banks. They are our choices to make. But we cannot do it all and expect the benefits of prudent economic and budgetary management. No lobby or special interest group sees their request for support as being the one that pushes the economy into the red. And they are right; but we have to watch the totality of what we are doing. If we try to do too much and fly too close to the sun we will fall to earth. The biggest threat to the Irish economy may not be the decisions of Teresa May or Donald Trump; the biggest threat to the Irish economy are the choices we make ourselves. Let’s make a better fist of getting it right this time.
It seemed to slip under the radar but last week the Department of Finance published the first Annual Report on Public Debt Debt in Ireland. It is a really useful publication and the first report reviews public debt developments since 1995 and particularly the huge build-up of debt since 2008. The forward-looking analysis is also very good.
The report can be accessed here.