The key issue in any evaluative exercise, be it a commission of inquiry into the Garda, a tribunal of inquiry into a politician’s links with business figures, or a technical paper examining Ireland’s corporation tax, is the question asked.
The corporation tax paper published yesterday by the Department of Finance, and written by civil servant Kate Levey and UCC economics lecturer Séamus Coffey (right), is admirable in that the question asked, or mandate given, is to explain the methodologies used to estimate Ireland's effective corporation tax rate, and comment on which is the most relevant.
The rates cited in the report go from the 12.3 per cent cited by the World Bank/PwC for 2012, to the calculations of the Central Statistic Office (an average of 10.9 per cent since 2003), and the figure (2.2 per cent) that emerges from the 2011 tables of the Bureau of Economic Analysis in the United States.
For those who don’t know, the nominal corporation tax rate for profits from trading activities is 12.5 per cent, and Ireland Inc tends to argue its system is clear and uncomplicated, unlike others where the rate is higher but the scope for write-offs is also greater.
The 2.2 per cent figure was highlighted by Trinity professor Jim Steward recently, and caused some concern. But the issue is the question asked, and the question asked by the US bureau is what profits – and what foreign taxes – were booked by Irish-incorporated subsidiaries of US multinationals in any year.
The Washington bureau is not interested in what profits were made, and what tax was paid by firms that were tax resident in Ireland, which is the issue that is of most interest to, say, the Revenue Commissioners or the CSO.
The World Bank/PwC exercise, by the way, aims to compare tax systems in terms, for instance, of their headline rates and the tax write-offs available, rather than measuring the actual outcomes.
So if you want to know what effective tax rate is being paid by Irish corporates liable for corporation tax, your best bet is the Civil Service here. Nice to know.
