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Slides NERI Seminar - Recent Trends and Causes of Irish Corporation Tax Revenues

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Slides from NERI Seminar held on 30th January, 2019. Speaker - Seamus Coffey, Department of Economics, UCC

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Slides NERI Seminar - Recent Trends and Causes of Irish Corporation Tax Revenues

  1. 1. Recent Trends and Causes of Irish Corporation Tax Revenues Nevin Economic Research Institute 30th January 2019 Seamus Coffey
  2. 2. 0 2,000 4,000 6,000 8,000 10,000 €million 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Corporation Tax Revenues Source: Department of Finance Exchequer Annual Net Corporation Tax Revenues, €million Exchequer Returns: Corporation Tax
  3. 3. 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 €million 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Gross Domestic Product Source: Central Statistics Office Real Gross Domesric Product (2016 Prices), €million National Accounts: GDP
  4. 4. 0 250 500 750 1,000 1,250 €million 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Gross Capital Stock Source: Central Statistics Office Gross Capital Stock of Fixed Assets (2016 Prices), €billion National Accounts: Capital Stock
  5. 5. If not IP, why did CT jump in 2015? Factors from Tancred (2016, 2017) to explain the 2015 increase in CT: • €470m was received from companies in 2015 who did not pay CT in 2014. • €200m came from companies who claimed losses in 2014 that did not do so in 2015. • €400m of additional CT was received from indigenous companies who also paid Corporation Tax in 2014. • Balancing payments received in 2015 relating to previous periods were €400m higher compared to the equivalent receipts of balancing payments in 2014. • The concentration of payments in the top ten payers did not increase markedly in 2015 rising from 37 per cent in 2014 to 41 per cent in 2015. • In 2016 receipts from the top ten payers returned to 37 per cent of the total. The top ten payers of Corporation Tax in 2015 paid €2.8 billion of Corporation Tax in that year. In 2014, these same ten companies paid €1.5 billion of Corporation Tax and they paid €2.3 billion in 2016. Around one-fifth of the increase from 2014 to 2016 is due to increased payments from the top ten payers in 2015. • The underlying increase in non-intangible asset related gross trading profits in 2015 was around €20 billion which corresponds to the increase in Corporation Tax receipts.
  6. 6. On Timing
  7. 7. Ireland’s IP regime • Introduced in Supplementary Budget of April 2009 • Cap of 80% on amount of taxable income that could be offset by capital allowances in any year. • Cap lifted to 100% for all claims from January 1st 2015. • The cap was restored to 80% in Budget 2018 but only for transactions completed after October 11th 2017.
  8. 8. Risks of waiting to collect tax •First, it requires the profits to be present in the future in order for the tax to be collected. •Second, it will also be the case that some of the intangible assets will, by their very nature, be time limited. •Third, Ireland faces the risk of the asset leaving the country when the capital allowances have been exhausted.
  9. 9. A simplified example • Consider a company that purchases an intangible asset for 100 and intends to depreciate the asset in its accounts on a straight-line basis over ten years. • The gross trading profits arising on an annual basis from the use of the asset are expected to be 8.0, 10.0, 12.0, 12.0, 14.0, 12.0, 10.0, 10.0, 10.0, 10.0, 10.0, 10.0, 6.0, 4.0, 2.0 and zero thereafter giving a total of 140 over 15 years. • For simplicity we will assume that the only adjustment to be made to the company’s gross trading profits to determine its Taxable Income is the capital allowances for the acquisition of the asset and that the only trading profits are those related to the use of the intangible. • We will also assume that related interest costs are nil.
  10. 10. Conclusion • Profits linked to IP do not explain the jump in CT receipts in 2015. • Profits linked to IP are substantial but, up to 2016 at least, have been fully offset by capital allowances. • The gross profits linked to IP are included in Ireland’s GNI. • Ireland’s contribution to the EU is inflated by the inclusion of these profits in GNI. • A cap on the amount of capital allowances that can be claimed reduced the risk and volatility of CT receipts. • This applies for transactions after October 2017 (€1 trillion?) but not for those before this date.

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