Donohoe to review corporation tax sustainability

Minister for Finance Paschal Donohoe is to begin a review of the sustainability of corporation tax income in the wake of the sharp increase in receipts and new tax proposals from the OECD.

Mr Donohoe told Fianna Fáil finance spokesman Michael McGrath he would also look at the "so-called prudence fund" suggested by Irish Fiscal Advisory Council (IFAC) for excess income, but said that was what the rainy day fund was intended for in the first place.

“A shock to the corporate tax base cannot be discounted, particularly in light of change and uncertainty in the international policy environment,” he said.

Mr McGrath asked the Minister in light of the IFAC report if he would implement one of its key recommendations, the establishment of a prudence account.

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“That would warehouse excess receipts above a certain threshold of corporation tax”, which could then be passed into the rainy day fund or used to pay down debt.

The Cork South-Central TD said it was “quite startling” that the fiscal advisory council believed between €3 billion and €6 billion, or 57 per cent of about €10.4 billion in corporation tax, could be considered excess or outside the normal cycle.

“If those receipts were to disappear we would have a huge hole in the public finances,” Mr McGrath said.

Mr McGrath also asked if the Minister agreed with the council on its estimate that the quantum of receipts collected last year could not be relied upon.

Mr Donohoe said it was too early to say given the work under way in the OECD and they would be in a position to express a view by the middle of next year.

There were two issues – one in relation to the minimum effective global tax right and secondly on the allocation of taxing rights.

“Where we stand depends on the detail of those two proposals and if the mixture of both is delivered”.

It was too early to have a view on “what are the trade off on increased tax revenue being generated based on where value is located versus the risk of any taxing rights moving to larger markets”.

The Minister said he was putting a process in place “to see if we can form a better view of sustainability of receipts”, but he said it was going to be particularly complex to do in light of the discussions under way in the OECD “regarding the global environment for this tax”.

The concept of a minimum effective tax rate on corporate profits is on the agenda with indications of a consensus leaning towards one minimum rate globally.

Mr Donohoe said “we need to have a different benchmark for how expenditure is managed”.

He said he was examining “the so-called prudence account”. He had to establish what the benefits would be for a subset of the rainy day fund given that the fund was intended in the first place for excess receipts.

The Minister warned that “a shock to the corporate tax base cannot be discounted, particularly in light of change and uncertainty in the international policy environment”.

He said sector-specific shocks could reduce corporate profitability with adverse implications for future corporation tax receipts.