Saturday 25 January 2020

Firms here pay less tax than US, most of EU - study


Investment: PwC Ireland’s Susan Kilty says firms benefit from more efficient tax systems
Investment: PwC Ireland’s Susan Kilty says firms benefit from more efficient tax systems

Shawn Pogatchnik

A TYPICAL small firm in Ireland pays less tax than its EU and US peers, according to a PwC-World Bank analysis.

A detailed database provided by PwC shows that the hypothetical firm in question would pay Irish taxes equivalent to 26.2pc of its pre-tax profits.

Relocating that hypothetical firm to the US tax system would mean a 36.6pc bite out of those pre-tax profits, and 38.9pc on average across the 28-nation EU. The most taxed country by this metric is France, on 60.7pc, composed chiefly of labour taxes.

The model - designed by World Bank economists to produce the most consistent measure of indigenous firms' taxation experience - involves a profitable limited-liability company founded in January 2017 in the largest business city. It has 60 staff, including four managers. It records a 2017 loss but in 2018 - the year being measured - produces a 20pc pre-tax profit and pays half of net profit to its owners.

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Based on this model, the EU member with the lowest business tax burden is Romania, which collects tax equivalent to 20pc of that firm's pre-tax profit, followed by Luxembourg on 20.4pc, Croatia on 20.5pc, Cyprus on 22.4pc and Denmark on 23.9pc.

Ireland's sixth-place position in the EU reflects an effective corporate tax rate of 12.4pc - almost identical to the headline 12.5pc rate - and labour taxes equivalent to 12.4pc of pre-tax profit. The other 1.3pc chiefly reflects city and vehicle-related taxes.

While the Irish tax burden is lower than for most of its western peers, it has grown in percentage terms since the World Bank began compiling such data in 2004. At that time, the typical Irish medium-sized firm would pay tax equivalent to 25.4pc of its pre-tax profit, including an effective corporation tax rate of 11.9pc.

The analysis also identified Ireland as the easiest EU location for firms to pay taxes.

Its model found that the typical Irish small firm spent 82 hours annually on tax affairs, versus the EU average of 161 hours, and 234 hours globally.

"The more efficient a tax system, the better it is for business," said Susan Kilty, head of tax for PwC Ireland. "This, in turn, helps promote economic growth and investment."

Irish Independent

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