Ireland's Corporate Tax System is a central component of Ireland's economy. In 2016–17, foreign firms paid 80% of Irish corporate tax, employed 25% of the Irish labour force (paid 50% of Irish salary tax), and created 57% of Irish OECD non-farm value-add. As of 2017, 25 of the top 50 Irish firms were U.S.–controlled businesses, representing 70% of the revenue of the top 50 Irish firms. By 2018, Ireland had received the most U.S. in history, and Apple was over one–fifth of Irish GDP. Academics rank Ireland as the largest tax haven; larger than the Caribbean tax haven system.
Ireland's "headline" corporation tax rate is 12.5%, however, foreign multinationals pay an aggregate of 2.2–4.5% on global profits "shifted" to Ireland, via Ireland's global network of bilateral tax treaties. These lower effective tax rates are achieved by a complex set of Irish base erosion and profit shifting ("BEPS") tools which handle the largest BEPS flows in the world (e.g. the Double Irish as used by Google and Facebook, the Single Malt as used by Microsoft and Allergan, and Capital Allowances for Intangible Assets as used by Accenture, and by Apple post Q1 2015).
Ireland's main use "intellectual property" ("IP") accounting to affect the BEPS movement, which is why almost all foreign multinationals in Ireland are from the industries with substantial IP, namely technology and life sciences.
Ireland's GDP is artificially inflated by BEPS accounting flows. This distortion escalated in Q1 2015 when Apple executed the largest BEPS transaction in history, on-shoring $300 billion of non–U.S. IP to Ireland (resulting in a phenomenon dubbed by some as "leprechaun economics"). In 2017, it forced the Central Bank of Ireland to supplement GDP with an alternative measure, modified gross national income (GNI*), which removes some of the distortions by BEPS tools. Irish GDP was 162% of Irish GNI* in 2017.
Ireland's corporation tax regime is integrated with Ireland's IFSC tax schemes (e.g. Section 110 SPVs and QIAIFs), which give confidential routes out of the Irish corporate tax system to Sink OFC's in Luxembourg. This functionality has made Ireland one of the largest global Conduit OFCs, and the third largest global Shadow Banking OFC.
As a countermeasure to potential exploits by U.S. companies, the U.S. Tax Cuts and Jobs Act of 2017 (TCJA) moves the U.S. to a "territorial tax" system. The TJCA's GILTI–FDII–BEAT tax regime has seen U.S. IP–heavy multinationals (e.g. Pfizer), forecast 2019 effective tax rates that are similar to those of prior U.S. tax inversions to Ireland (e.g. Medtronic). Companies taking advantage of Ireland's corporate tax regime are also threatened by the EU's desire to introduce EU–wide anti-BEPS tool regimes (e.g. the 2020 Digital Services Tax, and the CCCTB).
Tax system Tax rates
, there are two rates of corporation tax ("CT") in Ireland:
a 12.5% headline rate for trading income (or "active businesses income" in the Irish tax code); trading relates to conducting a business, not investment trading; a 25.0% headline rate for non-trading income (or also called passive income in the Irish tax code); covering investment income (e.g. income from buying and selling assets), rental income from real estate, net profits from foreign trades, and income from certain land dealings and income from oil, gas and mineral exploitations in Ireland. The 10% manufacturing relief tax scheme ended in 2010 (see graphic).
Key aspects
, the key attributes that tax experts note regarding the Irish corporate tax system are as follows:
Low headline rate. At 12.5%, Ireland has one of the lowest headline tax rates in Europe (Hungary 9% and Bulgaria 10% are lower); OECD average is 24.9%. Transparent. Many of Ireland's corporation tax tools are OECD–whitelisted, and Ireland has one of the lowest secrecy scores in the 2018 FSI rankings. "Worldwide tax". Ireland is one of six remaining countries that use a "worldwide tax" system (Chile, Greece, Ireland, Israel, South Korea, Mexico). No "thin capitalisation". Ireland has no thin capitalisation rules, which means that Irish corporates can be financed with 100% debt, and 0% equity. Double Irish residency. Before 2015, Irish CT was based where a company was "managed and controlled" versus registered; the "Double Irish" ends in 2020. Single Malt residency. Post closure of the Double Irish to new entrants in 2015, it can be recreated by wordings in selective tax treaties (e.g. Malta and UAE). Extensive treaties. , Ireland has bilateral tax treaties with 73 countries (the 74th, Ghana, is pending). Holding company regime. Built for tax inversions, it gives Irish–based holding companies tax relief on withholding taxes, foreign dividends and CGT. Intellectual property regime. Built for the BEPS tools of U.S. technology and life sciences firms, recognises a wide range of intellectual assets that can be charged against Irish tax; the CAIA arrangement. Knowledge Development Box. Ireland created the first OECD–compliant KDB in 2016 to support its IP–based BEPS tools.
Yearly returns (2001–2019)
The trends in Irish corporation tax ("CT") receipts to the Irish Exchequer were:
Foreign firms pay 80% of Irish CT Revenue (notwithstanding that large U.S.–controlled tax inversions to Ireland, are classed as Irish firms). Irish CT Revenues jump in 2015, the year of Apple's re-structure of its BEPS tools. Since Apple's 2015 re-structure, Irish CT Revenue as a % of Total Irish Exchequer Tax Revenue is at its pre-crisis peak of over 16% (OECD average is 7.5%); Irish CT Revenue has been 10 to 16% of Total Irish Exchequer Tax Revenue (see graphic). The concentration of the Top 10 Irish CT Payers has risen post the crisis, despite the fact that Irish banks stopped paying Irish CT due to accumulated losses.
Table 3: Irish Corporation Tax (CT) Revenues: 2001–2019 (€ billion)CalendarYearNet CorporationTax Revenue (1)Total ExchequerTax Revenue (2)(1) as % of (2)Top 10 Payer as% of Net CTForeign Payer as% of Net CTReference20014.1627.9314.9%—— (restated)20024.8029.2916.4%——20035.1632.1016.1%——20045.3335.5815.0%——20055.4939.2514.0%——20066.6845.5414.7%17%—20076.3947.2513.5%16%—20085.0740.7812.4%18%—20093.9033.0411.8%35%—20103.9231.7512.4%32%circa 80%20113.5234.0210.3%39%circa 80%20124.2236.6511.5%34%circa 80%20134.2737.8111.3%36%circa 80%20144.6141.2811.2%37%circa 80%20156.8745.1315.2%41%circa 80%20167.3549.0215.0%37%circa 80%20178.2050.7416.2%39%circa 80%201810.454.7419%45%77%201910.957.3719%40%77%202011.8356.3321%51%82%202115.23267.422.6%53%89%202222.64582.34527.5%57%86.5%202323.84288.30327%52%83.8%
Structure of Irish taxation
Each year, the Department of Finance is required to produce a report on Estimates for Receipts and Expenditure for the coming year. The table below, is extracted from the "Tax Revenues" section of the report for the prior-year (e.g. the 2017 column is from the 2018 report), by which time the "Tax Revenues" for that year are largely known (although still subject to further revision in later years).
The "Tax Revenues" quoted are Exchequer Tax Revenues, and do not include Appropriations-in-Aid ("A–in–A") items, the largest being Social Security (or PRSI) which for 2015 was €10.2 billion, and other smaller items. Irish Personal Income tax, and the two main Irish consumption taxes of VAT and Excise, have consistently been circa 80% of the total Irish Exchequer Tax Revenue, with the balance being Corporate tax.
Table 4: Distribution of Irish Exchequer Tax Revenues.CategoryAmount (€ m)Distribution (%)20142015201620172014201520162017 Customs 260 355 330 335 1%1%1%1% Excise Duty 5,080 5,245 5,645 5,735 12%12%12%11% Capital Gains Tax (CGT) 400 555 695 795 1%1%1%2% Capital Acquisitions Tax (CAT) 330 370 455 450 1%1%1%1% Stamp Duties 1,675 1,320 1,220 1,200 4%3%3%2% Income Tax (PAYE) 17,181 18,199 19,184 20,245 42%41%40%40%Corporation Tax (CT)4,525 6,130 7,515 7,965 11%14%16%16% Value-Added Tax (VAT) 11,070 12,025 12,630 13,425 27%27%26%27% Local Property Tax (LPT) 520 438 460 470 1%1%1%1% Total Exchequer Tax Revenue 41,041 44,637 48,134 50,620 100%100%100%100%
Low tax economy Transition in 1987
Ireland's economic model was transformed from a predominantly agricultural-based economy to a knowledge-based economy, when the EU agreed to waive EU State-aid rules to allow Ireland's 'special rate' of 10% for manufacturing (created in 1980–81 with the EU's agreement), to be extended to the special economic zone called the International Financial Services Centre (IFSC) in Dublin city centre in 1987. The transformation was accelerated when Ireland's standard corporate tax rate was reduced from 40% to 12.5% (phased in from 1996 to 2003), in response to the EU's 1996–1998 decision to withdraw the State-aid waiver. The passing of the 1997 Taxes and Consolidated Acts laid the legal foundations for the base erosion and profit shifting (BEPS) tools used by U.S. multinationals in Ireland (e.g. the Double Irish, the Capital Allowances for Intangible Assets and the Section 110 SPV), to achieve an effective Irish CT rate, or ETR, of 0–2.5%.
While low CT rates (and even lower effective tax rates), are a central part of Irish tax policy, non–CT Taxation in the Republic of Ireland is closer to EU–28 and OECD averages. Ireland's policy is summarised by the OECD's Hierarchy of Taxes pyramid (reproduced in the Department of Finance Tax Strategy Group's 2011 corporate tax policy document). As shown in , annual Irish CT has been between 10 and 16 percent of annual Total Irish Tax from circa 1994 to 2018. From 2000 to 2014, Ireland's Total Tax-to-GDP ratio was circa 27–30%, versus the OECD average of 33%. However, since Apple's Irish restructuring artificially inflated Ireland's GDP by 34.3% in 2015, Ireland's Tax-to-GDP ratio had fallen to the bottom of the OECD range at under 23%.
In June 2018, tax academics estimated that Ireland was the largest global tax haven, exceeding the combined flows of the entire Caribbean tax haven system. Tax academics have also showed that being a corporate tax haven has been a prosperous economy strategy for Ireland, and most other havens. However, research also showed that the artificial distortion of Ireland's economic data, and GDP in particular, by BEPS flows, led to a large credit bubble during 2003–2007 (due to the mispricing of Ireland's credit by international markets), and an eventual credit–property–banking crisis in 2008–2013 (when Ireland's credit was re-priced).
Ireland's main foreign multinationals are from periods when their home jurisdiction had a "worldwide tax" system (see Table 1), and since the UK switched to a "territorial tax" system in 2009–12, Ireland has been almost exclusively a U.S. corporate–tax haven (see Table 1). In October 2014, The Guardian quoted Bono, the lead singer of Ireland's U2, as saying that "his country's tax policies have "brought our country the only prosperity we've known"". In April 2016, award-winning Irish writer, Fintan O'Toole labelled Ireland's focus on being a U.S. corporate tax haven as the core economic model, as Ireland's OBI, (or "One Big Idea").
Multinational economy
U.S.–controlled multinationals, either legally based in the U.S. or legally based in Ireland (e.g. tax inversions), dominate Ireland's economy. In June 2018, the American Chamber of Commerce (Ireland) estimated the value of U.S. investment in Ireland was €334 billion, which compared to 2017 Irish GNI* of €181.2 billion. In January 2018, Eurostat used 2015 data to show the gross operating surplus of foreign companies in Ireland was almost exclusively from U.S. companies, with the UK was a distant second, and little other foreign firm activity.
In 2016–2017, foreign multinationals, being entirely U.S.–controlled:
Directly employed one–quarter of the Irish private sector workforce; Paid an average wage of €85k (€17.9bn wage roll on 210,443 staff) versus the Irish Industrial wage of €35k;