Tax revenue figures each month have consistently outperformed expectations. But the figures for November, a key month for tax each year, have brought this to a new level. The €13.6 billion collected in tax during the month was a record – by a distance. And corporation tax, income tax and VAT all played their part. The strength in VAT was something of a surprise, given the fall-off in consumer spending indicated in the latest CSO figures. The buoyancy in corporation tax and income tax was the continuation of a trend seen throughout the year, with a strong monthly performance added in.
November is the most important month for corporation tax, and €5 billion in revenue from this source was a lift of almost one quarter on the same month last year. While earlier months showed an even larger increase, the Department of Finance warned then that once-off factors were at play, at least some of which related to the pharma sector. The latest monthly increase appears more broadly based.
The Department, the Fiscal Advisory Council and the Central Bank have all warned that up to half of the corporate tax receipts now being received cannot be explained by what we know about the normal activity of multinationals here. The implication is that this revenue is vulnerable. And it may be, if companies, for example, run into particular problems or decide to restructure their operations, for example by moving some intellectual property (IP) assets elsewhere, perhaps back to the US.
There is another possibility, which is that the operations of these firms in Ireland have, since 2015, moved to a new and higher level and that much of the increase in revenue reported here, and thus the tax, may remain. In this scenario, the challenge may be to hold on to existing tax levels, rather than planning for a decline. The running down of tax allowances on IP moved here in recent years will, in itself, ensure a higher proportion of profit reported here is exposed to tax. Corporation tax can’t continue increasing at its current rate, but whether it will decline significantly is very much open to question. Fingers crossed.
