Ireland’s corporate tax bubble is now a €30bn hot air balloon

In the early part of the last decade Ireland’s winning streak on foreign direct investment (FDI) attracted the wrong kind of attention.
We weren’t just a geographical gateway for selling into Europe (with an English-speaking, educated workforce), we were, according to US senators investigating the offshore tax practices of Apple, a “tax haven” on a par with the Cayman Islands.
This was serious brand damage for Ireland Inc.
The world was inflamed at the extent of corporate tax avoidance and Ireland with its notorious “double Irish” ruse was seen as facilitator-in-chief.
This narrative of course obscures the US tax system’s own involvement in promoting the offshoring of profits. If Ireland was a tax net, the US was a tax sieve.
Every other week there were blood-boiling stories about big corporates paying a level of tax that would make a rogue builder blush.
Apple’s main Irish subsidiary Apple Sales International was said to have paid less than €10 million of corporate tax on €16 billion of profit in 2011, an effective tax rate of 0.05 per cent.
Google’s Dublin-based advertising sales business reportedly paid €48 million in tax on earned revenues of €22.6 billion in 2015. At the time, the search engine was channelling global revenues through a holding company based in Bermuda, a jurisdiction that did not charge corporation tax.
Even liberal-leaning coffee giant Starbucks was found to be paying less tax than its staff in the UK, many of whom were on minimum wage.
The outcry was enormous. A clampdown was coming and Ireland jumped into the safest boat available, an OECD-led (Organisation for Economic Co-operation and Development) reform agenda that would eventually lead to a global minimum rate of tax (15 per cent) and possibly a reconfiguration of taxing rights in favour of bigger countries (the latter process has stalled in the face of political opposition).
[ The 10 blockbuster companies behind Ireland’s corporate tax windfallOpens in new window ]
With many calling for a much higher minimum rate and Europe pushing for a more punitive digital tax, Ireland was counselled to accept this as the lesser of two evils.
Despite warnings that the reforms could wipe out 50 per cent of Ireland’s corporate tax base, the OECD’s former tax director Pascal Saint-Amans said Ireland would ultimately benefit from a more stable and transparent system with buy-in from all countries.
At the time of Saint-Amans’s comments, Ireland’s corporate tax receipts had doubled to €10 billion. The thinking in government circles was, so what if we lose a few billion as long as we keep these multinationals here. Their footprint in terms of employment and income tax is extremely valuable. They also give the Irish economy prestige, a different kind of intangible asset.
Fast forward a few years and the hit to Ireland’s tax base is what actually? Not only has corporate tax doubled again to more than €20 billion, it may be in the process of tripling.
The exchequer returns published on Wednesday, show the Government collected €3.7 billion in corporation tax in August, up by €1.9 billion or 109 per cent on the same month last year.
Cumulatively, corporation tax has generated €16.3 billion so far this year, 28 per cent or €3.6 billion higher than last year’s record total at the same stage.
Goodbody economist Dermot O’Leary described the figures as “an embarrassment of riches” while predicting the full-year total could hit €30 billion, three times the amount garnered just five years ago. With November the main month for receipts from the business tax, the Department of Finance is still projecting an end-year total of about €25 billion. Barring a sudden downward shock this will almost certainly be eclipsed.
Not for the first time, Apple has torpedoed the department’s projections. While the brands behind these tax payments are kept tightly under wraps, we know the iPhone giant is relatively unique in having a financial year ending in September, which means the company makes two half-year tax payments to Revenue – one in March and one in August – based on what it thinks its full-year liability will be.
Last month’s bulge probably relates to Apple as there are few companies that could cause such a ripple effect (medical equipment giant Medtronics also makes a payment in August).
The latest acceleration in corporate tax comes in advance of the likely revenue leap from the move to a 15 per cent minimum rate. Although liable from this year, companies don’t have to start making the additional payments on the new rate until 2026. The boom is likely to get boomier (as Bertie Ahern might say) as companies exhaust generous tax-cutting capital allowances.
The Government may soon be running for cover again as news of our post-OECD reform windfall leaks out.
Minister for Finance Jack Chambers might feel he has been thrown into the hot seat with so many issues, not least housing, stalling the country’s progress and on the eve of a major budget and general election but the resources at his disposal are unprecedented.