Ireland most efficient country for paying tax in EU, says PwC

Ireland has again been ranked as the most efficient country in the EU when it comes to paying business taxes and the fifth-most efficient in the world.

The PwC/World Bank Paying Taxes report ranks countries according to their levels of bureaucracy for paying and filing taxes as well as the amount of tax levied on businesses.

The 2016 edition found Ireland’s statutory headline rate of tax on company profits was broadly similar to the effective rate, which is not often the case.

When labour and other taxes are taken into account, the typical Irish-based company paid a total tax rate on corporate profits of 26 per cent, comprising 12.4 per cent in corporation taxes, 12.2 per cent in labour taxes – mostly PRSI – and 1.4 per cent in other taxes, including vehicle registration tax (VRT).

This was considerably lower than the EU average of 40.3 per cent, which was made up of profit taxes of 12.4 per cent, labour taxes of 26.3 per cent and 1.6 per cent in other taxes.

In Ireland’s case, the big difference arises on labour taxes where the State is significantly more competitive on the cost of employing people, the report noted.

Ireland also scored well when it came to interacting with the tax authorities. Irish companies spend an average of 82 hours a year complying with the tax regime compared to 218 hours in Germany. This was the fourth-lowest time in the EU and the European Free Trade Association, with the region recording an average of 164 hours.

Multinational tax

The report said that the global tax environment was immersed in a process of change because of the OECD’s base erosion profit shifting(Beps) project, which is aimed at clamping down on multinational tax avoidance.

It said Ireland had been acknowledged as a leader “in adopting to this new environment” while noting the Beps process aimed to increase tax transparency and address public concerns that companies were not paying their fair share of tax.

Speaking at the launch, Joe Tynan, PwC Ireland's head of tax, said: "Post-Beps the focus will be on the tax rate, economic substance and people, and Ireland scores well on all three.

“The report confirms that Ireland is competitive on corporate taxes but also on the costs of employing people. The OECD and the EU are pushing companies to allocate their profits to locations where they have employees and places of management and away from locations without substance.

“Ireland places a comparatively reasonable tax burden on employment. This is increasingly more important, as international companies decide where to locate key international centres.”