If personal taxes are up to 51% what should Corporation Tax be?

Brendan Burgess

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I raised this in another thread, but I think it is worth highlighting as it's really a fundamental question.

Imagine if we had no foreign-owned multinational companies in Ireland.

We have a lot of profitable Irish companies selling their stuff in Ireland and abroad.

What would be the right rate of Corporation Tax?

The top rate of Income Tax is 51% including USC but excluding PRSI which does pay for one's pension.

But what should the likes of Ryanair or CRH?

They would pay 12.5% of their profits in taxes.

They pay me a dividend which I then pay 51% tax on.

So if my share of Ryanair's profit before tax is €100.
Ryanair pays 12.5% tax
Net profit after tax : €87,500
My personal taxes 51%: €44,600

Net receipt after tax: €42,900

Effective tax rate: 57%
 
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If I invest directly in a property , I pay 51% tax on the rental profit.

If I invest in a property via a REIT, it's structured so that I don't get hit with the Corporation Tax as well. The net tax rate is 51%.

Brendan
 
Just checked out Ryanair's tax


It does seem very low.

All I can find is a 2007 article which suggests:

Ryanair pays less tax than boss O'Leary

DESPITE earning almost €1.6bn profits over the past five years, Ryanair has paid just €11.6m in tax over the period, the Sunday Independent can reveal. This represents an effective tax rate of less than one per cent.
www.independent.ie

Analysts reckon that many Ryanair aircraft are owned by subsidiary companies based in tax havens such as Cyprus. The aircraft are then leased back to an Irish operating company. By structuring the ownership of its aircraft in this way Ryanair is able to avail of other countries' front-loaded capital allowances.

Ryanair is also believed to have structured the ownership of its online ticket sales operation in a way that minimises its tax bill. This is understood to be owned by a Channel Islands-registered company, which then charges the parent company a commission for every ticket sold.
 
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OK, I have looked at the effective Corporation Tax rates of the profitable Irish based multinationals:

 

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This report from Revenue may assist:

Corporation Tax – page 7

“2.4 Ownership Tax records do not provide a complete record of the ‘nationality’ (or country of ownership) of companies operating in Ireland. To address this, Revenue has compiled a marker for companies tax resident in Ireland, distinguishing three categories: Irish owned multinational, foreign owned multinational and non-multinational.

This marker has been enhanced with information from external (non-Revenue) sources in 2020. This enhanced marker identifies 14,545 foreign owned multinationals and 2,821 Irish owned multinationals from the 167,769 companies active on Revenue records (filing returns for 2019). As shown in Figure 3, foreign owned multinationals paid €9,657 billion (82 per cent of net CT receipts), Irish owned multinationals €841 million (7 per cent) and non-multinationals €1.335 billion (11 per cent).

Payroll Taxes – page 1

Over 2.4m employments in companies, with combined Income Tax, USC and PRSI payments for these employees of €21.5bn. Foreign multinationals account for 32% of employment and 49% of employment taxes.
 
Hi Protocol

Not really. I am thinking what is fair rather than what is optimal. I know my optimal tax rate.

I have not yet given a lot of consideration to it, but my initial views to kick off the discussion are

1) Personal income tax rates and Corporate Tax rates should be integrated.
2) If CRH in which I have shares pays 30% CT, I should get some credit for that.
3) A company like Ryanair, in which I have shares, should pay more than 3% on its worldwide profits - if it makes those profits in low tax jurisdictions, it should pay the balance to the Irish Exchequer.
4) If Ryanair does not distribute its profits, then I don't get a tax credit. Should I get one against CGT?

As a general principle, individuals and companies should pay fair taxes and no country should be facilitating them to avoid paying fair taxes. If another country does allow an individual to avoid taxes, then we should adapt our laws to tax them here in Ireland.

Brendan
 
Which is exactly what the USA is doing - they think fair is 15% - we think fair is 12.5%
 
There must be some rational economic basis for what is “fair” though.

We have a tiny indigenous economy by international standards.

Taxation is a balancing act. The choices are to impose cripplingly high taxes, such as in the 1970s, or grow the economy so that more individuals and companies contribute to lower the general burden of taxation.

You started by saying “Imagine if we had no foreign-owned multinational companies in Ireland”.

The Revenue report shows the amount of CT and payroll taxes paid by foreign multinationals and their employees.

Subtract them from the tax receipts and then where do we go to decide what is fair?
 
Don't companies also pay a further tax, on after tax profits, that aren't distributed?
 
I think the current system of having low corporation tax, and higher personal taxes, is the right one for Ireland - simply because we need to attract in foreign employers, otherwise a lot less people earn, and the personal tax rate doesn't matter!

Now, what we could look harder at, is having a way to apply a higher / penal rate on corporates that aren't employing people here - given their net contribution to the economy is a lot less.
 
MrEarl said:
I think the current system of having low corporation tax, and higher personal taxes, is the right one for Ireland - simply because we need to attract in foreign employers, otherwise a lot less people earn, and the personal tax rate doesn't matter!
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Exactly. Capital is far more mobile than people.

As a rule I think everyone who earns an income should pay some income tax and the total marginal rate should not be above 50%. A good start would be to change the USC back to the way it was when it was first introduced.
 
MrEarl said:
I think the current system of having low corporation tax, and higher personal taxes, is the right one for Ireland - simply because we need to attract in foreign employers, otherwise a lot less people earn, and the personal tax rate doesn't matter!
Click to expand...

Exactly! US employers in Ireland pay something close to US wages which are taxed in Ireland much higher than they would be in the US.

Hence MNC employees pay half of all tax from the private sector despite being only a third of employees:

Sophrosyne said:
Over 2.4m employments in companies, with combined Income Tax, USC and PRSI payments for these employees of €21.5bn. Foreign multinationals account for 32% of employment and 49% of employment taxes.
Click to expand...

This is swings and roundabouts stuff. What Ireland loses on corporation tax it makes up on income tax.
 
NoRegretsCoyote said:
Hence MNC employees pay half of all tax from the private sector despite being only a third of employees:
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That's not quite what the reports says.

The report is about companies only.

The 49% refers to the percentage of payroll taxes paid by foreign multinational company employees compared to all company employees.
 
Brendan Burgess said:
If I invest directly in a property , I pay 51% tax on the rental profit.

If I invest in a property via a REIT, it's structured so that I don't get hit with the Corporation Tax as well. The net tax rate is 51%.

Brendan
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Your point in the first two posts is interesting. We look at Corporate profits as it the company is a person who is only paying 12.5% tax. In reality any profit made is owned by the shareholders who in effect are double taxed on it if they draw it as income. I don't think that's unfair but it is good to frame the discussion in that context.
That said I'm a shareholder in a private company and I don't really think of it as double taxation.
 
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