A Department of Finance study said the amount of corporation tax coming from a small number of giant multinationals was becoming "increasingly pronounced".
Early conclusions from the study warned that intangible assets owned by Irish subsidiaries – including intellectual property – could account for up to half of the “observed strength in foreign receipts”.
It suggested that each €10 billion reduction in intangible stock had the potential to reduce the corporation tax take by €170-€190 million annually.
The research, which is still under way, also said a “stylised shock” to the sector of about 20 per cent in “traded sector GVA [Gross Value Added]” could reduce GDP growth by 2.75 percentage points after five years relative to the baseline.
The study is being carried out by two researchers from the department’s economics division and was presented in December last year.
The department said the analysis was ongoing and the results were “preliminary in nature” with further work still required.
A copy of a slide deck on the research – released under FOI – said production processes were becoming “highly fragmented” and the value of intangible assets was rising.
These assets were, however, “hard to identify”, often more mobile, and also under renewed focus in discussions on international tax.
Exposure
The research is looking at just how “exposed” the public finances are and what would happen if these intangible assets were to “reverse back out” of the Irish economy.
It said evidence so far suggested that a perception that the strength in corporation tax was entirely linked to “on-shored IP [intellectual property]” was “not supported”.
It looked like only a portion of revenues was due directly to intangible assets but warned there were data deficiencies which were “problematic” in finding out what was driving the remainder of corporation tax receipts.
The researchers said the next stage would be trying to find out more about increases in corporation tax that were not being driven by intellectual property.
A spokesman for the department said they were continually assessing sustainability challenges and potential budgetary risks.
He said: “Given the continuing upward trajectory in corporation tax receipts in recent years, the department has been actively assessing the potential risks associated with this ever-growing source of revenue.
“The current analysis is similarly motivated by the risks raised if structural expenditure is funded from potentially volatile revenue sources.”
He said the department had repeatedly flagged the risk of using revenue streams that may prove “transient” to finance permanent increases in public expenditure.
