Ireland isn't so tax friendly, says ESRI
Thinktank points to disparity between our GDP and GNP
IRELAND is not the very low tax country it is regularly made out to be, with like-for-like comparison to other countries not being a suitable measure for this country's tax regime.
That is the verdict of the Economic and Social Research Institute, which says the perception of Ireland as a tax-friendly location is "in need of some correction".
The most common parameters for comparing a country's tax regime with another is based on the ratio of tax revenues to GDP.
That does not work as well for Ireland, however because of the huge disparity between GDP and GNP in Ireland. The huge numbers of multinational corporations based in Ireland means there is a much greater difference between the two measures here than elsewhere.
The research paper was compiled by several academics at the institute as part of its "Budget Perspectives 2014" series.
"For most countries GDP is a good measure of taxable capacity, and close to GNP; the other major measure of national income," the ESRI said.
"For Ireland, the role of redomiciled companies mean that close to 5pc of GNP is not part of the tax base at all; and the outflow of repatriated profits from multinationals, which forms about one-fifth of GDP, is taxable in Ireland as in most other countries, at relatively low rates.
"When adjustments are made for these factors, the ratio of tax revenues to a better measure of taxable capacity is higher by five percentage points.
"On this basis, Ireland has a moderately low ratio of tax to taxable capacity, somewhat below the UK, but well above that of Spain, Greece and Portugal; the standard GDP based figures suggest an Irish tax ratio which is the lowest in the EU by a considerable margin," they add.
While the research comes at a good time for a Government that has been rocked by revelations about how Apple, Google and many other countries use Ireland to avoid paying billions in corporation tax, the thinktank makes clear it is not recommending what an appropriate tax level should be.
When it comes to personal taxes, the ESRI found the structure of Ireland's marginal effective tax rate was "progressive compared with EU partners [with] low or zero marginal rates at the lower and middle income levels, and high rates towards the top.
"This necessarily limits the revenue generated by the income tax system, because the low marginal tax rates at low income levels apply also to the relevant 'slice' of income of those with higher incomes."