Tuesday 20 August 2019

Rising company profits behind €2.2bn surge in corporation tax

€2.2bn rise in corporation tax receipts. (stock picture)
€2.2bn rise in corporation tax receipts. (stock picture)

David Chance

A €2.2bn rise in corporation tax receipts last year bolstered the exchequer and allowed the government to meet overspending on health and balance the budget and the latest analysis from Revenue shows that an increase in trading profits was likely behind the surge in payments.

That is a dramatic change from previous years in which rising revenues from company taxes largely reflected a falloff in tax credits against research and development and a drop in deductions from losses incurred during the financial crisis years.

The numbers released by the Revenue  Commissioners on Wednesday said that of the bumper €10.4bn collected from company taxes last year, a gain of €350mn was due to accounting changes and a further €350mn in receipts were one off.

“The remainder of the growth arises from improved trading conditions and increased product sales among large multinational companies based in Ireland,” it said.

With receipts from foreign owned companies, largely the U.S. multinationals based here, that increase mirrors an increase in their underlying profitability.

Credit ratings agency Standard & Poor’s has estimated that U.S. company profits rose 20pc in 2018 from 2017.

The problem with corporation taxes is that they are very unpredictable and have become more volatile over time.

An additional risk for revenues is their concentration in a very small number of industries, such as medical and pharmaceuticals which account for a third of the €140bn of goods exported last year.

Government forecasts for this year show a small decline in company tax receipts is expected at 9.98bn before they start to rise again.

By 2023, the State expects to be collecting €70bn in tax revenues of which €11.7bn is expected to come from company taxes.

Ireland is not alone in seeing a surge in corporate tax receipts since the end of the recession as they have risen sharply across the European Union since hitting a low in 2009.

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