Strong corporation tax receipts likely to reoccur next year - Revenue
The strong performance in corporation tax is expected to reoccur next year, assuming no currency fluctuations or a drop in profits for the big multinationals, Revenue has said.
Exchequer returns for last month showed that corporation tax receipts so far this year are 74pc ahead of target, and account for around €2bn of the overall €2.47bn over performance in the amount of tax collected.
In a letter to Finance Minister Michael Noonan, Revenue chairman Niall Cody said there are various reasons for the increased payments, including improved trading conditions associated with increased sales of internationally traded products.
“An additional smaller factor is the impact of currency fluctuations on the taxable profits of some groups,” Mr Cody wrote.
“On the assumption that there are no further currency fluctuations or decline in the profitability of the larger corporate groups and based on the information derived from engagement of Revenue case managers with the companies, we expect that much of this surplus will reoccur next year.”
Mr Cody wrote that there is generally a stable relationship between tax receipts and forecasts of economic growth, but that for corporation tax, the relationship is more volatile.
He said the economic growth factor applied for corporation tax is gross operating surplus (GOS). In September of last year, when completing the forecast for this year’s Budget, the projected GOS supplied to Revenue by the Department of Finance was 5.15pc. By September of this year, the forecast growth for GOS had risen to around 15pc.
“In the case of Corporation Tax, given the scale of the operations of multinational companies in Ireland, it is not surprising that this tax has proven difficult to forecast accurately,” Mr Cody wrote.
“Around 80pc of corporation tax receipts come from the multinational sector and, of this, the majority come from the ICT and pharmaceutical sectors.”
Mr Cody said the top ten groups account for over a third of receipts.
“Corporation tax receipts are therefore highly susceptible to shocks, positive or negative, both sector and company specific.”
Mr Cody said that €1.2bn of the €2bn surplus in corporation tax receipts this year is associated with very large multinationals, and involve a number of companies..
Approximately a quarter of the surplus is associated with companies with tax payments between €1m and €100m.
Mr Cody said both Revenue and the Department of Finance have agreed to review the forecasting method for corporation tax and have established an internal working group.