The Department of Finance published a substantial piece of research into the effective rate of Corporation Tax paid by Irish companies. The research is topical, given the degree of public debate on the amounts of tax paid by multinational companies here, and the role of our 12.5% rate of Corporation Tax in attracting Foreign Direct Investment.

The report examines three methodologies used by different estimates of our effective Corporation Tax rate which are in the public domain. Some approaches use the notion of a Hypothetical Model Company. By plugging in the figures and applying the tax rules you end up with an effective rate estimate. Other approaches aggregate the results from groups of companies in terms of their profitability and tax payments. A third approach involves working with aggregate results from sources such as the Central Statistics Office and the Revenue Commissioners. The report concludes that working with national aggregates probably gives the most appropriate effective rate result, provided that the aggregate results reflect who is actually liable for the tax. On this basis, the report plumps for effective rates of Corporation Tax just shy of 11%.

The report, compiled by Seamus Coffey of UCC and Kate Levey of the Department of Finance is rigorous, and offers careful consideration of both unduly high and unduly low estimates in the public domain before rejecting them. The effective rate of tax in Ireland has been a target of many of the critics of our Corporation Tax regime. Both the activity of any particular company (think for example Research and Development) and its sources of profits and gains (with three prevailing rates – 12.5%, 25% and 33%) will always make it difficult to draw convincing generalisations about corporate activity as a whole in Ireland.

Furthermore, there’s more to a tax regime than merely the rate. Shareholders in Irish companies do not benefit from any underlying tax paid by the company when they receive dividends, as is the case in many other countries. Irish companies do not get the same level of relief for investment in capital equipment as companies do in many of our European neighbours. Nevertheless, this report is a useful contribution to an important public debate, and is available from the Department of Finance website.