Question on effective corporate tax rate

DÁIL QUESTION

NO 9

To ask the Minister for Finance his views on a report that companies (details supplied) may be paying an effective corporate tax rate in this country of less than 1% and that other high profile and and highly profitable corporations may be paying similarly extremely low effective rates of corporate tax; and if he will make a statement on the matter.

– Thomas Pringle.
For ORAL answer on Thursday, 17th January, 2013.
Ref No: 1984/13

REPLY

Minister for Finance ( Mr Noonan) : I am precluded from discussing the tax affairs of any particular individual or company.

However, I am aware of recent media reports which refer to the ways that some companies structure their international tax affairs to minimise their tax costs, and the fact that some of these reports make reference to Irish companies being part of these structures. I understand that some of these reports have suggested that some companies in multinational groups pay Irish corporation tax at rates that are significantly lower than 12.5%.

At this point it is important to state clearly that such companies are not paying a low rate of Irish tax – all companies in Ireland pay the standard 12.5% rate on their profits which are generated in Ireland. The reports concerned appear to have incorrectly attributed to Ireland profits that represent the return due to assets in other jurisdictions, owned by group companies that are not resident in Ireland.

It is incorrect to relate the 12.5% corporation tax rate to both the profits of the Irish-resident group companies and the profits of foreign-resident group companies— which are not profits chargeable to Irish corporation tax. By mixing up the Irish profits and the foreign profits of multinational groups like this, these reports can produce an average tax rate for the companies concerned that is lower than 12.5% — and an incorrect inference that the full Irish profits are not being charged.

Multinational groups, with subsidiaries in other countries as well as in Ireland, incur other bona fide expenditures. For example, licence payments, which are paid to group companies in foreign jurisdictions for the use of intellectual property rights, are properly deductible in computing Irish profits. If these licence payments are untaxed in the foreign jurisdiction, this will reduce the average rate of tax for the total profits of the Irish and the foreign-resident subsidiaries when these are taken together. From an Irish perspective, we ensure that the profits arising in Ireland are taxed at our 12.5% rate of corporation tax. We do not seek to charge profits properly attributable to other jurisdictions.

The ability of entities to lower their world-wide ‘effective rate’ of tax using international structures reflects the global context in which Ireland and indeed all countries operate. Differences arise in the legal and tax systems between countries. International tax-planning takes account of these differences in national systems and rules. The only way to combat such arrangements is for countries to work together to examine these structures and to consider how international rules can be amended to ensure fair levels of taxation.

In that regard, Ireland participates fully in both the OECD’s Forum on Harmful Tax Practices and the EU Code of Conduct Group. During the forthcoming Irish Presidency of the European Council, my Department intends working closely with the European Commission and other EU Member States to make progress on new EU proposals on tax evasion and aggressive tax-planning.

The tax system in Ireland has a positive international reputation based on transparency and the fact that it is applied equally and openly to all corporate taxpayers. The fact that Ireland has an extensive tax treaty network confirms our international standing. The January 2011 Global Forum Peer Review Report on Ireland’s legal and regulatory framework for transparency and exchange of information found that Ireland has an effective system for the exchange of information in tax matters and is fully compliant with OECD standards.

Our job in Government is to bring investment and jobs to Ireland, and we have used the tax code and in particular our competitive corporation tax system to do so for over 50 years. What companies do outside of Ireland is beyond the scope of the Irish tax system. We cannot conclusively determine the effective rate of tax paid under international tax structures by reference to taxation in Ireland alone but, as I have outlined already, we continue to work with international bodies to ensure fair play.

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