The contribution of foreign companies to the business economy and corporate income tax base in Ireland

This paper looks at the sources of value added, labour payments and gross value added in the Irish business economy from 2008 to 2012. In particular it looks at the breakdown by economic sector and by country of controlling... [ view full abstract ]

This paper looks at the sources of value added, labour payments and gross value added in the Irish business economy from 2008 to 2012. In particular it looks at the breakdown by economic sector and by country of controlling owner, especially the United States, of enterprises operating in Ireland. Foreign companies make around 80 per cent of Corporation Tax payments to the Exchequer. The paper examines the sources of these payments and highlights that in the business economy just three sectors account for 50 per cent of the tax base. Finally the paper considers the possible impact of changes to the tax base away from a source of value-added basis to a destination of customer sales basis in a stylised Irish and European context for the manufacture of pharmaceuticals, a sector which contributes around one-sixth of Exchequer Corporation Tax revenues. At present, around one-quarter of the profits from the manufacturing of pharmaceuticals in the EU is in Ireland’s corporate income tax base. The stylised example shows a potential loss of up to 95 per cent of Ireland’s corporate income tax base for this sector if a sales principle was used. Finally, using an approach similar to the Common Consolidated Corporate Tax Base (CCCTB) as proposed by the European Commission it is found that a potential loss of up to 82 per cent of this tax base is possible. The potential loss of Corporation Tax revenue for the Irish Exchequer is between €575 million and €650 million per annum.