Slides from NERI Seminar held on 30th January, 2019. Speaker - Seamus Coffey, Department of Economics, UCC

1. Recent Trends and Causes of Irish
Corporation Tax Revenues
Nevin Economic Research Institute
30th January 2019
Seamus Coffey

2. 0
2,000
4,000
6,000
8,000
10,000
€million
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Corporation Tax Revenues
Source: Department of Finance
Exchequer Annual Net Corporation Tax Revenues, €million
Exchequer Returns: Corporation Tax

3. 0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
€million
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Gross Domestic Product
Source: Central Statistics Office
Real Gross Domesric Product (2016 Prices), €million
National Accounts: GDP

4. 0
250
500
750
1,000
1,250
€million
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Gross Capital Stock
Source: Central Statistics Office
Gross Capital Stock of Fixed Assets (2016 Prices), €billion
National Accounts: Capital Stock

11. If not IP, why did CT jump in 2015?
Factors from Tancred (2016, 2017) to explain the 2015 increase in CT:
• €470m was received from companies in 2015 who did not pay CT in 2014.
• €200m came from companies who claimed losses in 2014 that did not do so in 2015.
• €400m of additional CT was received from indigenous companies who also paid
Corporation Tax in 2014.
• Balancing payments received in 2015 relating to previous periods were €400m
higher compared to the equivalent receipts of balancing payments in 2014.
• The concentration of payments in the top ten payers did not increase markedly in
2015 rising from 37 per cent in 2014 to 41 per cent in 2015.
• In 2016 receipts from the top ten payers returned to 37 per cent of the total. The
top ten payers of Corporation Tax in 2015 paid €2.8 billion of Corporation Tax in that
year. In 2014, these same ten companies paid €1.5 billion of Corporation Tax and
they paid €2.3 billion in 2016. Around one-fifth of the increase from 2014 to 2016 is
due to increased payments from the top ten payers in 2015.
• The underlying increase in non-intangible asset related gross trading profits in 2015
was around €20 billion which corresponds to the increase in Corporation Tax
receipts.

12. On Timing

14. Ireland’s IP regime
• Introduced in Supplementary Budget of April 2009
• Cap of 80% on amount of taxable income that could be
offset by capital allowances in any year.
• Cap lifted to 100% for all claims from January 1st 2015.
• The cap was restored to 80% in Budget 2018 but only
for transactions completed after October 11th 2017.

15. Risks of waiting to collect tax
•First, it requires the profits to be present in the
future in order for the tax to be collected.
•Second, it will also be the case that some of the
intangible assets will, by their very nature, be
time limited.
•Third, Ireland faces the risk of the asset leaving
the country when the capital allowances have
been exhausted.

16. A simplified example
• Consider a company that purchases an intangible asset for
100 and intends to depreciate the asset in its accounts on a
straight-line basis over ten years.
• The gross trading profits arising on an annual basis from the
use of the asset are expected to be 8.0, 10.0, 12.0, 12.0,
14.0, 12.0, 10.0, 10.0, 10.0, 10.0, 10.0, 10.0, 6.0, 4.0, 2.0
and zero thereafter giving a total of 140 over 15 years.
• For simplicity we will assume that the only adjustment to be
made to the company’s gross trading profits to determine its
Taxable Income is the capital allowances for the acquisition of
the asset and that the only trading profits are those related
to the use of the intangible.
• We will also assume that related interest costs are nil.

19. Conclusion
• Profits linked to IP do not explain the jump in CT receipts in
2015.
• Profits linked to IP are substantial but, up to 2016 at least, have
been fully offset by capital allowances.
• The gross profits linked to IP are included in Ireland’s GNI.
• Ireland’s contribution to the EU is inflated by the inclusion of
these profits in GNI.
• A cap on the amount of capital allowances that can be claimed
reduced the risk and volatility of CT receipts.
• This applies for transactions after October 2017 (€1 trillion?) but
not for those before this date.