Corporate tax report warns of ‘potential tax hole’

The Exchequer could collect 20 billion euros in corporation tax this year, according to a report published today by the Ministry of Finance.

This compares to just over €15 billion in corporation tax collected last year and would be four times the amount of corporation tax collected in 2014.

But today’s report warns of a “potential fiscal hole” in public finances.

The report says between €4 billion and €6 billion in corporation tax could be “potentially at risk” because the “underlying” basis of this tax windfall may be transitory.

He compares the reliance on corporate taxes in public finance today to that of reliance on property taxes during the boom, describing it as “a blind spot for finance public”.

He says there is a “compelling case” for moving part of corporation tax into a new Rainy Day fund to pay for the costs of our aging population.

The report also says that from now on, in key publications, the ministry will release estimates of the budget position net of the estimated amount of corporate tax surplus.

The report notes that last year, 53% of corporate tax was paid by just 10 large multinational corporations, sometimes called “superstar” companies, located here.

He cautions that this is a volatile figure because a year earlier those same top ten companies only accounted for a third of the catch.

This, the report says, shows how concentrated the risk is and how much the amount of corporation tax can vary from year to year.

The report also draws attention to the unpredictable fate of many so-called “superstar” companies like Blackberry and Nokia, which can make huge profits for years before their technology is overtaken by other innovative companies.

Finance Minister Paschal Donohoe said around €1 out of €4 of all taxes collected came from corporation tax payments – an exceptionally high figure in historical and cross-border terms.

“The key message from today’s release is that relying on volatile revenue streams to finance permanent increases in public spending is a potential blind spot for public finances,” Donohoe said.

“In my view, there is a strong case for treating part of corporate tax revenue as volatile in nature. By doing so, we can address a key risk to public finances and thus help ensure the fiscal sustainability of our country,” he added.

Mr Donohoe said he would not prejudge what the government decides on whether to establish a new Rainy Day fund.

He said that in the past, funds have been set up to help and put the money raised each year to good use.

He added that his own view is that we need to build Ireland’s resilience in the times ahead, but how this could be done is a matter for the government to consider in the budget.

On doubts over the implementation of the OECD-brokered global tax deal, Mr Donohoe said he thought the introduction of pillar two proposals around a minimum rate was important for Ireland and the EU’s continued ability to compete and finance investment.

He said failure to implement the deal would bring the situation back to “day zero”.

He added that it would be much riskier for the global economy and much more difficult and challenging for the Irish economy, due to the risk of countries acting alone.

This would lead to a rapid decrease in international tax cooperation and, in turn, an increase in economic and trade risks, he said.

– additional reporting by Will Goodbody