Corporation tax receipts projected to hit €27bn by 2026

Corporation tax, the golden goose at the heart of the Irish economy, will net the exchequer €27 billion in 2026, according to the Department of Finance. Last year, receipts from the business tax took in a record €22.6 billion. This year they’re expected to be €24 billion.

But the strength of corporate profitability, the continued onshoring of assets and the running down of capital allowances means the windfall is expected to continue and even get stronger.

The €27 billion forecast was contained in the Government’s latest Stability Programme Update and comes despite the well-aired concentration risk of having so few firms paying it (10 large multinationals pay more than 50 per cent of receipts) and the potential threat from global tax reforms.

The department’s chief economist John McCarthy said the introduction of the 15 per cent minimum tax rate for large companies under the OECD-led reforms would likely boost Ireland’s tax revenue, at least initially. However, that benefit was likely to be offset by a loss in revenue from the reallocation of taxing rights in favour of bigger countries.

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Under pillar one of the OECD’s reform agenda, taxing rights will be reallocated to market jurisdictions while under pillar two a new effective minimum corporate tax rate of 15 per cent will be applied to companies with annual turnover of at least €750 million.

While the implementation of a new minimum corporate tax rate has largely been agreed, pillar one has been held up as countries haggle over the exact quantum of reallocation. The move also faces political opposition in the US.

Even if the reforms are agreed, the department doesn’t expect the upward trajectory in tax receipts here to be halted. This has been the direction of travel for more than decade. Warnings, risks, threats but upwards and onwards in terms of receipts.

The big question now is how much of these receipts will Minister for Finance Michael McGrath set aside in a new savings vehicle. The department estimates that up to €12 billion of the current total can be classified as “windfall”. But like everything to do with corporation tax, figures have a habit of becoming obsolete rather quickly.