Ireland risks bigger than expected revenue losses under a global overhaul of corporate tax rules kicking in next year, according to a new government estimate.
(Bloomberg) — Ireland risks bigger than expected revenue losses under a global overhaul of corporate tax rules kicking in next year, according to a new government estimate.
Officials expect the loss in revenues “may be more than €2 billion” ($2.13 billion) a year given the “significant rise” in tax receipts from corporations over recent years, according to internal briefing documents prepared by Ireland’s Department of Finance.
The ministry previously estimated that the reform, agreed on by more than 140 countries through the Organization for Economic Cooperation and Development, could cost about €2 billion a year by 2025.
Implementation of the deal could lead to a “sharp reduction” in receipts from corporations, which rose to record highs last year, according to the briefing prepared for Finance Minister Michael McGrath. Ireland recorded an exchequer surplus of €5 billion in 2022 after corporate tax receipts rose almost 50% from a year earlier to €22.6 billion.
While it remains difficult to accurately estimate the impact of the OECD deal, “proportionally the cost of the agreement will rise,” officials warned.
Ireland agreed in 2021 to jettison its long-standing 12.5% tax rate for companies with global revenues in excess of €750 million and to adopt a new global minimum effective rate of 15%, due to be implemented starting January 1, 2024.
The reforms provide for the reallocation of some profits earned by about 100 of the world’s largest companies. Officials advised McGrath this will “come at a cost to Ireland” when it comes into effect, likely also in 2024 once a critical mass of countries have ratified the convention.
Corporate taxes paid to the Irish Exchequer almost doubled compared with €10.4 billion in 2018 and rose almost sixfold compared to 2011 after Europe’s financial crisis ebbed. Just 10 companies account for more than half of Ireland’s corporate tax revenue, according to the ministry.
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