Minister for Finance, Paschal Donohoe T.D. published the Annual Taxation Report, which looks at 2020 tax receipts and the impact of COVID-19 on key revenue streams. The report details that medium-term fiscal planning continues to assume a decline in corporation tax receipts, with the burden of meeting the cost of public services falling on other revenue streams, as international tax reform is “very likely”. The high proportion of tax revenues collected through corporation tax is said to represent a significant risk to public finances.
Despite the impact of the pandemic, tax revenues fell by just 3.6 percent or €2.1 billion last year. The fall in tax revenues in 2020 is said to be largely driven by the fall in taxes on production and imports. However, tax liabilities included in the Tax Debt Warehousing Scheme contributed to the fall in tax revenues reported in the Exchequer return for the year. Total tax debts warehoused at the end of 2020 amounted to €1.9 billion.
Income tax receipts were attributed as a key factor in the resilience of tax receipts. While unemployment levels rose significantly in 2020, this was concentrated in ‘income tax poor’ sectors. The resilience of income tax receipts is attributed to the highly progressive nature of the Irish income tax system, as ‘tax rich’ sectors able to adapt to the ‘work from home’ environment are said to have emerged virtually unscathed.
A similar sectorial effect is seen in corporation tax receipts, as micro firms and small and medium-sized enterprises bore the brunt of the impact from the pandemic and associated restrictions. Large multinational firms paid 82 percent of the corporation tax revenues in 2020, with 2020 also being a record year for corporation tax receipts.
Ireland has experienced a trend of strong growth in corporate tax receipts since 2015. Corporation tax receipts now account for 20 percent of total tax revenues, compared with 12 percent in 2010. The report shows how corporate tax receipts have increased by almost 70 percent in the last five years. This trend is said to be driven by the strong growth in revenue from multinational firms, particular in ICT, pharma and financial sectors. The report also confirms that the top ten largest firms accounted for just over half of total corporate tax revenues in 2020. The report highlights “the volatility and unpredictability inherent in corporation tax receipts, which are dominated by a handful of large, highly profitable multinational firms.”
Immediately prior to the pandemic, tax revenues had reached a record high totalling nearly €60 billion. Last year tax receipts fell by €2 billion due to the impact of the pandemic. While the full impact of international tax reform is still unclear, official forecasts estimate a similar level of loss in corporate tax revenues due to international tax reform by 2025. The report indicates that this estimate “may, of course, be higher”.
The report highlights that the resilience of tax revenues in 2020 allowed for the State to not borrow as much as other countries to support the pandemic response, as the tax system did more of the ‘heavy lifting’.
As emphasised by Minister Donohoe in the accompanying press release, “this report offers valuable insight into the performance of our tax receipts last year…”. The report also informs discussions on the impact of international tax reform and the impact of the estimated loss of some €2 billion in corporate tax revenues to the Exchequer.
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