Relative Calm in the 2019 Aggregate Corporation Tax Calculation

A while back the Revenue Commissioners published the 2019 update of the Aggregate Corporation Tax Calculation.  Given recent developments in Corporation Tax revenues is it perhaps surprising to note the general stability in most items in the table.

Aggregate CT Calculation for Taxable Income 2015-2019

Two of the more notable figures are for Capital Allowances used and Foreign Income.  The rise in capital allowances is linked to the onshoring of intangible assets while foreign income is a function of the worldwide nature of the Irish Corporation Tax regime.

The lower half of the table showing how Taxable Income is translated into Tax Due is also relatively stable.  All told, the €6.9 billion increase in Net Trading Income in 2019 resulted in a €728 million increase in Tax Due

Aggregate CT Calculation for Tax Due 2015-2019

In line with the increase in foreign income reported on Irish Corporation Tax returns there has been an increase in Double Taxation Relief and for the Additional Foreign Tax Credit.  These items have by largest impact in the transition from Gross Tax Due to Tax Due. The relief is because the Irish-resident companies which have this foreign income have paid tax in the source jurisdiction so are unlikely to owe any additional tax in Ireland (as the rates paid abroad will generally exceed the 12.5 per cent rate that applies here).

Use of the R&D Tax Credit rose in 2019 with increases in both the credit itself and in the Payment of the Excess R&D Tax Credit in circumstances where a company claiming the credit does not have a sufficiently large tax liability in order to be able to fully utilise the amount of the credit they are eligible for.  Combined these came to €629 million in 2019.

A rarely-looked at item is Gross Withholding Tax on Fees which increased to €367 million in 2019.  Essentially, this is to allow for tax that has already been paid.  There are a number of instances where the person making a payment for certain services must withhold 20 per cent of the fee from the recipient and transfer it to the Revenue Commissioners. 

When a company files its tax return it will include the amount of withholding tax incurred on fees it should have received.  This item reduces the amount of Tax Due but, in a manner somewhat similar to foreign tax credits, it reflects tax that has already been paid.

In the transition from Gross Tax Due to Tax Due the only item that explicitly reduces a company’s tax bill is the R&D tax credit.  If Ireland switched to a territorial regime, the need for foreign tax credits would be removed and the gap between Gross Tax Due and Net Tax would be reduced with limited impact on the liability of companies to Irish Corporation Tax.

Relative Calm in the 2019 Aggregate Corporation Tax Calculation