Record amount of corporation tax collected last year

The high proportion of tax revenue coming from corporation tax poses “a significant risk to public finances”, according to a report released today by the Ministry of Finance.

Last year, corporation tax accounted for 20% of tax revenue, compared to an average of 12% ten years ago.

€11.8 billion was collected in corporation tax last year – the highest amount ever recorded.

It is also two and a half times more than the amount collected in 2014.

Ten companies, all multinationals, accounted for just over half of corporate tax collected in 2020.

Foreign multinationals pay 82% of corporate tax collected.

The Department’s annual tax report says reforms currently being negotiated at OECD level could lead to a €2 billion reduction in Irish corporation tax.

However, the report notes that it could be higher.

The report also notes that the resilience of income tax revenues was the main reason why tax revenues fell only 3.5% last year, despite the pandemic.

It was the first decline in tax revenue in a decade.

Finance Minister Paschal Donohoe said the Covid-19 pandemic and associated public health measures had had a relatively moderate impact on overall tax revenue, “compared to the impact on the labor market – largely due to the resilience of income tax, which has only fallen by 1% per year – year on year.”

“This is explained by the progressiveness of income tax and the sectoral nature of the Covid shock, the most affected sectors being dominated by employees at the bottom of the wage scale and who were, as a result, largely outside of net income tax,” Minister Donohoe said.

Peter Vale, Tax Partner at Grant Thornton Ireland, said the report notes that the progressivity of our income tax system means that we depend on a relatively small cohort of taxpayers for the bulk of our tax revenue.

“A broadening of the tax base would bring more taxpayers into the tax net and reduce the shock impact of an outflow of high incomes, for example following an outflow of FDI,” he said. declared.

Mr Vale said that although a broadening of the income tax base has been noted before, it is likely to be “politically difficult” as it would bring more taxpayers into the tax net.

“As a result, despite its merits, there has been little action to broaden the tax base in recent years,” he added.

He said the report also notes the threat to future corporate tax revenues from new global tax reforms, which would see some profits diverted to other jurisdictions.

“It is incredibly difficult to predict the impact of the proposed global changes on our future corporate tax revenues, not least because many of the most important details have yet to be agreed.

“Although not mentioned in the report, it is also possible that corporate tax revenues will increase in the future, if for example we are forced to increase our corporate tax rate to 15% and there is no significant IDE output as a result.

“The expiry of certain intellectual property tax reliefs could also result in higher Irish corporate tax revenue over the coming year,” Mr Vale said.