A recent report issued by the Parliamentary Budget Office (PBO) warns that the public finances of Ireland could be jeopardised due to its reliance on a small number of corporations contributing significantly to the country’s annual corporate tax (CT) revenue. PBO’s research highlighted the risk posed by the likelihood of at least two companies contributing over 10% each to Ireland’s CT income.
The study examined the swift expansion of the business tax base in Ireland, which has soared from a mere €3.5 billion in 2011 to over €24 billion in the preceding year, thereby making it the country’s second-largest tax revenue stream following income tax and outpacing VAT. However, the opportunities that this unprecedented growth provides are counterbalanced by substantial risks and uncertainties, according to the report.
The report indicated that merely 10 large firms, which reportedly include tech powerhouses such as Apple, Google, and Microsoft, account for almost 60% of all tax contributions. This over-dependence on a handful of companies is assessed as being considerably more risky compared to other countries.
Notwithstanding sweeping changes to the global tax environment, including the phasing out of the hybrid tax configuration utilised by US firms and reforms inspired by the Organisation for Economic Co-operation and Development (OECD), the CT revenue in Ireland has endured and expanded. The report underscores the correlation between the increasing CT receipts and the surge in computer services and pharmaceutical exports, as well as the onshoring of intellectual property.
Nonetheless, according to the report, the risks to CT revenues are diverse and complex, stemming from a variety of sources such as over-dependence on a small number of large corporations, potential offshoring of intellectual property, and possible further international tax reforms. All these could impact the unpredictability of CT revenues. It also cites infrastructural sufficiency and the mobile nature of certain industries as potential threats.
The report from the PBO questions if the surge in receipts can be accurately described as a tax boon, considering that the trend of CT receipts exceeding one-year projections has persisted for more than ten years and could signal a fundamental change in CT receipts. “Nonetheless, it remains uncertain given that this scale of overachievement may not endure indefinitely into the future,” it stated.