Tax burden on Irish firms inside EU norm, report finds

ATTACKS ON Ireland’s low corporation tax regime are unfair but the concerns of our EU partners need to be addressed, Chartered Accountants Ireland has said in a position paper.

The paper uses EU data to point out that Ireland’s corporation tax yield is the equivalent of 2.9 per cent of its Gross Domestic Product (GDP) while that of Germany is only 1.1 per cent of its GDP. The figure for France is 2.8 per cent.

The report also points out that Ireland’s corporation tax take constitutes 9.8 per cent of its overall tax take, compared with 2.8 per cent in Germany, and 6.5 per cent in France.

Attacks on Ireland’s 12.5 per cent corporation tax rate are unfair because the tax burden imposed on Ireland’s companies is well inside the European norm, according to the paper.

It points out the amount of tax paid by a company is dependent not just on headline rates but also on such matters as how allowances are structured and the effect of dividend payments on the extent of the profits taxed.

The paper advocates the use of a business taxation structure established in the 1990s by European finance ministers to address the issue of harmful tax competition.

The code of conduct for business taxation and an expert group chaired by the then UK paymaster general Dawn Primarolo led to voluntary action by member states against harmful practices.

These included the special corporation tax rates that used to exist for companies based in Shannon or the IFSC.

The accountancy body recommends the reinvigoration of this body as a way of addressing the concerns that have been raised about corporation tax in the EU.

Such a move would allow the matter be dealt with by way of political intervention.

The paper notes the proposals made by the French and German leaders in February 2011 originated outside EU structures and that this was not normal.

In 2009, commission president José Manuel Barroso sought a report from former competition commissioner Prof Mario Monti on the evolution of the single market. In his report, Prof Monti argued against tax harmonisation but in favour of a common definition of corporation tax bases and further work through the code of conduct business group.

On the commission’s proposal for a common consolidated corporation tax base (CCCTB), the paper argues it is an idea that is no longer relevant, given progress in such areas as transfer pricing and judgments of the European Court of Justice over the decade since the project was first initiated.

The idea’s “practical implementation would serve only to distort the distribution of taxes within the European Union,” according to the paper.

It cites studies that show how the introduction of such a scheme would affect the tax take and GDP of EU states.

A 2007 study by the Oxford University Centre for Business Taxation found that overall tax revenues would drop by 2.5 per cent if the scheme was introduced on an optional basis. On a mandatory basis, the scheme would bring about a 2 per cent increase in tax revenues.

A report commissioned by the Department of Finance is also cited. That report, by Ernst Young, found that a mandatory CCCTB scheme would positively affect the economies of Belgium, Spain and France. All other countries would suffer a negative impact on their economies, including Germany and Britain.

Europe and Corporation Tax: Setting the Record Straightis available on the website charteredaccountants.ie.