As Irish-based companies paid an ‘effective’ corporation tax rate of 7pc in 2020, firms are shopping around to cut bills
The report by the Paris-based EU Tax Observatory also found that well over half (58.5pc) of Ireland’s corporation tax take and profits are a result of “profit shifting” by firms shopping around to cut their tax bills.
The organisation, which is part-funded by the EU, labelled Ireland a “tax haven” in its first ever Global Tax Evasion Report.
The report said Irish households had more than $120bn (€113bn) of “financial wealth” such as equities, bonds, mutual funds and bank deposits squirrelled away in offshore tax havens last year. That amounts to around a fifth of Ireland’s 2022 GDP.
The 7pc effective corporation tax rate compares to a 31pc effective tax on labour, .
An effective tax rate is the average amount of tax paid by an individual or company, once things like social charges are added and after reliefs and deductions are taken out.
Ireland has signed up to introducing a 15pc global minimum effective tax rate for large multinationals, which was legislated for in the finance bill last week.
The tax is due to come into force next year, requiring firms to file a separate tax return and pay a top-up tax to Revenue to bring them up to the 15pc rate.
The first returns and payments under the new tax are not expected until 2026.
But the EU Tax Observatory said the new 15pc tax has been weakened due to “a growing list of loopholes” that have been introduced since it was agreed in 2021, which have reduced its expected revenues by half.
The Organisation for Economic Cooperation and Development (OECD), which spearheaded the tax reform that has been agreed by almost 140 countries worldwide, estimates it will generate annual global revenue gains of around $220bn (€208bn). The Observatory had estimated EU revenues at €80bn in 2021.
The last time Ireland’s effective corporate tax rate was 15pc was 1974, the EU Tax Observatory report found. Its highest ever point was 18pc in 1970. Ireland introduced a 12.5pc headline corporation tax rate in the 1990s.
A low effective tax rate does not mean companies are evading tax, which is illegal, or avoiding it via legal loopholes.
It can also be down to “policy choices” to attract bigger firms and high-income earners, the report says.
The report also said that offshore tax evasion is declining but that domestic evasion is growing.
Global billionaires have an effective tax rate of between zero and 0.5pc of their wealth, due to their frequent use of shell companies to avoid income tax, it said.
French economist Gabriel Zucman, the head of the Paris-based observatory, is calling for a 2pc global minimum tax on billionaires, which he says could raise close to $250bn from around 3,000 individuals.
“This is the logical next step after the global minimum tax on multinational companies – which demonstrates that it is possible for countries to agree on minimum tax rates,” Mr Zucman said.
Earlier this year, the ‘State of Tax Justice 2023’ report by the Tax Justice Network, a UK-founded group of researchers, said Ireland inflicts tax losses of $19.98bn (€18.1bn) – made up of $11bn (€10bn) of corporate tax abuse and almost $9bn (€8.1bn) of private tax evasion – on other countries each year.
