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Since the economy began to recover, the share of corporate tax in government revenue has increased significantly. Today, this source accounts for more than 10% of government revenue, up from 6.5% in 2014.
Public finances are not only highly dependent on corporate tax revenues, but they are dominated by a handful of companies. This makes it potentially volatile.
According to the Revenue Commissioners, 40% of this income comes from only 10 companies. If circumstances have changed with the Irish activities of these companies, there could be a very big impact on Irish public finances.
Including the big 10, foreign multinational corporations account for 80% of the corporate tax and US companies nearly 90% of the taxable profits of multinationals. For example, about 7% of Irish tax revenues are likely to come from US multinationals
highlighting the extent to which Irish tax revenues are affected by US tax laws. In the past, US companies could delay the payment of US tax on their profits if they put their profits abroad. They have generally chosen as "parking areas" jurisdictions with zero or very low tax rates, such as Ireland.
US Tax Laws
Although the United States made major changes to their tax laws last year, it does not have US companies to locate the profits made in the US. in foreign jurisdictions in low tax jurisdictions.
A test of the extent to which profits are transferred is the share of value added represented by profits (or wages). When the rate of profit is very high, it is a prima facie proof of a profit transfer.
The fact that it is mainly American companies that change their profits suggests that it is the United States that is losing the most
The profitability data suggest that foreign multinationals headquartered in the European Union have very little transferred their profits to Ireland.
Detailed data available for the EU show that German multinationals operating in Ireland have a profit rate of 43 percent, exactly the same as for German companies operating outside Germany in Germany. Other EU countries. This certainly does not suggest any profit transfers to Ireland to benefit from the low tax rate.
For French companies operating in Ireland, the rate of profit is also similar to that of French companies operating in Central Europe or the United Kingdom. UK-based multinationals have a higher rate of profit elsewhere in the EU than in Ireland.
The reason why EU-based multinationals do not transfer profits to Ireland is that their national tax authorities do not allow it. This contrasts with US tax legislation, which for decades has allowed US multinationals to evade corporate tax in the United States.
Last month, an economist from the United States and Denmark used this approach to examine profit rates. the extent to which profits were transferred to low-tax destinations, such as Ireland. However, one of their conclusions, namely that other EU states, such as France and Germany, have been the losers of this relocation, is not not consistent with the data.
The fact that it is mainly US companies that are the United States are the main losers of this activity. A second small loser may be China, because a significant portion of the profits transferred to Ireland by US companies comes from computers and phones made in China.
If these goods were manufactured by a subsidiary in China rather than manufactured on the contract, part of the profits could be paid as a tax in China.
Two Risks
The dependence of Irish tax revenues on the corporate tax of US corporations carries two risks. First, a change in US tax legislation could result in a sudden leak. The second risk is the reputational damage caused to Ireland because of the widespread perception among our EU colleagues that we benefit at their own expense.
The solution to the first risk is to save a significant portion of corporate tax revenues. 19659002] At least half of the over 8 billion euros that will be received this year is attributable to the transfer of profits to Ireland by US multinationals. In this context, the proposal to save 500 million euros in a "rainy" fund seems too weak.
It will be much more difficult to counter the reputation of Ireland. It would be useful for the Revenue Commissioners to publish corporate tax data in the country where the multinationals are located, confirming that it is primarily a US problem.
However, in a world of commercial wars, taking undue advantage at the expense of Europe will put additional pressure on these societies and, hence, on Ireland.
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