The great corporation tax debate

How much Corporation Tax is paid in Ireland? This is a relatively easy question to answer. In 2013, €4,270m was collected in Corporation Tax receipts.

This was 11.3pc of overall Exchequer tax revenue and equivalent to 2.6pc of Gross Domestic Product (GDP).

The revenue generated by Corporation Tax in Ireland is in line with the EU average.

The answer that Ireland is in line with EU averages does not generate front-page news.

This is because it is usually a different question that attracts attention: how much Corporation Tax is paid by companies in Ireland as a proportion of their profits?

This is the effective tax rate.

The answer to this is a function of the tax and profit figures used. Gauging the amount of tax paid in Ireland is straightforward. Determining the level of profits earned is less so, particularly when many of the large companies operating in Ireland are multi-national corporations (MNCs) that have activities in numerous jurisdictions.

By referring to all the profits earned by these MNC subsidiaries it is possible to end up with very large profit figures and relative to the tax paid in Ireland these can give rise to very low effective tax rates. Figures giving effective tax rates as low as 2.2pc are sometimes quoted.

Irish GDP is around €165bn. The distribution of this can be roughly broken down as follows:

* €70bn of compensation paid to employees.

* €20bn of mixed/self- employed household income.

* €20bn of product taxes collected by the government.

* €55 bn for the Gross Operating Surplus of companies.

Gross Operating Surplus is a measure of the profitability of companies and once depreciation of €8bn is deducted a net figure of €47bn results. Comparing this to the amount of Corporation Tax paid gives an effective rate of around 8.5pc.

From 2003 onwards the average effective corporate tax rate using this measure is just under 11pc

This can be reconciled with figures from the Revenue Commissioners who assess the corporate profits using accounting and tax principles.

For 2011, these show a Taxable Income total of €40bn and a Tax Due of €4.1bn which gives an effective burden of 10.5pc. This has also averaged around 11pc since 2003.