It is “probable” that two or more firms are individually paying more than 10 per cent of Ireland’s annual corporation tax (CT) haul, posing a significant risk to the public finances, a new report has warned.
The Parliamentary Budget Office (PBO) study assessed the rapid growth in Ireland’s business tax base, which has grown from just €3.5 billion in 2011 to over €24 billion last year and into “the country’s second biggest tax stream” in advance of VAT and behind income tax.
While this has been advantageous for the public finances, “the opportunities it presents are accompanied by significant uncertainties and challenges”, the report said.
A key concern relates to the over-reliance on a small number of firms with 10 big enterprises, known to include tech giants Apple, Google and Microsoft, accounting for almost 60 per cent of receipts. This concentration risk was noted as being “significantly” higher than in other countries.
The PBO report also said it was probable that two or more companies (in the top 10) have surpassed a 10 per cent threshold in their contribution to CT revenue.
“Changes in the business operations or tax strategies of such firms would have a significant impact on Ireland’s fiscal health,” it warned.
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Despite significant changes to the international tax landscape, including reforms led by the Organisation for Economic Co-operation and Development (OECD) and the phasing out of the hybrid tax planning structures used by US companies, the State’s CT receipts have continued to grow.
The report said the rapid growth in receipts has coincided with the onshoring of IP (intellectual property) here and a surge in computer services and pharmaceutical exports. The State’s computer services exports, for instance, grew from €32 billion in 2015 to €196 billion in 2022 which, the report said, “may be related to the IP assets brought into Ireland in recent years”.
The risks to CT revenues are varied and multifaceted, it said. “They range from concentration risk, where a disproportionate share of CT is paid by a few large corporations, to firm-level and footloose industry risks,” it said.
Other risks included infrastructure adequacy, more international tax reforms, the possible offshoring of IP and “the inherent volatility” of CT revenues.
The PBO’s report also queries whether the influx of receipts can be referred to as a tax windfall when “the pattern of CT receipts outperforming one-year ahead forecasts has lasted over a decade and may indicate a structural shift in CT receipts”
“However, it is not possible to be definitive as it may be the case that this level of outperformance will not be maintained long-term into the future,” it said.
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