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Ireland Studies Potential Drop In Record High CIT Receipts

by Jason Gorringe, Tax-News.com, London

18 October 2019


A reversal of recent surges in corporate tax receipts could hit tax revenues and affect the Ireland's longer-term economic position, according to analysis released by the Irish Finance Department.

A report on fiscal vulnerabilities was published alongside Budget 2020. It was commissioned by Finance Minister Paschal Donohoe, to assess the possible impact of a fall in corporation tax revenues.

At the end of 2018, around EUR1 in every EUR5 collected in tax was paid by the corporate sector, with around 45 percent of all corporate tax receipts paid by just 10 firms. Receipts for 2019 are projected at around EUR10bn, nearly double the EUR4.6bn collected in 2014.

The report stated that the "surge in CT receipts and highly concentrated nature of these receipts highlight the risk of permanently increasing public expenditure (or financing reductions in taxation) on the basis of potentially transient receipts," while "firm-specific shocks to profitability could potentially make a severe dent in the Government's overall revenue stream."

The report modelled three scenarios in which receipts declined. In the most severe scenario, where receipts reverted to 2014 levels, there could be a deterioration in the general government baseline (GGB), relative to baseline projections, of around 1.75 percentage points of GDP.

A less severe scenario would involve a decline in corporate tax receipts to 14 percent, from nearly 19 percent at present, reverting to the long-run "norm." This could involve a permanent revenue loss of EUR2bn a year, resulting in a half percentage point fall in the GGB. Finally, were corporate tax receipts to move in line with gross national income, the revenue lost would amount to EUR1bn a year, so that by next year, the GGB would be around a quarter percentage point of GDP below the baseline.

In a foreword to the report, Donohoe said: "The globalization model, from which Ireland has benefitted enormously, is increasingly under pressure and, on some measures, has gone into reverse. This, together with the ongoing process of global tax reform, means that it is even more important to reduce the exposure of the public finances in Ireland to the corporate tax revenue stream. Put simply, we cannot use revenue streams which may prove transient to finance permanent increases in public expenditure."

TAGS: tax | Ireland | corporation tax | revenue statistics | tax reform | BEPS

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