Corporation tax receipts are likely to exceed €26 billion this year, €2 billion more than the Department of Finance is currently forecasting, according to well-placed Government sources.
The additional receipts are linked to an uplift in corporate profits generally, the exhaustion of certain capital allowances and a significant jump in contract manufacturing by several Irish-based firms, including Apple’s main Irish subsidiary, Apple Operations International.
Contract manufacturing occurs when a company outsources production to a third-party, which is typically based abroad. Apple is said to have increased production of iPhones via a third-party company in China.
This is reflected in the Central Statistics Office’s latest industrial production numbers, which highlighted a 71 per cent jump in manufacturing output in April and Apple’s own better-than-expected quarterly sales data.
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The profit generated from the sale of these phones is expected to be channelled directly through Apple’s Irish operation, resulting in a bigger tax liability for the company here.
As a result, the department’s €24.3 billion projection for corporation tax this year is expected to undershoot by at least €2 billion, the sources said.
The additional exchequer revenue is also expected to push up the Government’s projected €10 billion surplus for 2023 while adding further pressure on Minister for Finance Michael McGrath to open up the purse strings in the budget later this year.
Corporate tax revenue rose by an unprecedented 45 per cent to €22.6 billion last year, placing it ahead of VAT as the State’s second-largest revenue source. The total was three times the €6.9 billion collected in corporation tax as recently as 2015.
The main driver of the surge in receipts last year was Apple. According to the Companies Registration Office, Apple Operations International reported a significant increase in income last year while deductions for capital allowances did not keep pace, meaning the company’s tax liability here shot up.
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Up to €12 billion of last year’s corporate tax haul is classified by the Department of Finance as windfall, meaning it is divorced from domestic activity and therefore not to be relied upon into the future or tied into day-to-day spending.
The forecast for corporation tax this year comes on the back of a report by the Irish Fiscal Advisory Council, which indicated that the business tax base was even more concentrated than previously thought with just three firms accounting for a third of all receipts between 2017 and 2021.
While the three firms were not named, the first two are understood to be Apple and Microsoft while the third is likely to come from a shortlist that includes Pfizer, Intel and Google.
