Ireland’s corporation tax windfall may be even more concentrated around IT (information technology) and manufacturing than the official figures suggest, according to the Irish Fiscal Advisory Council (Ifac).
The council estimated that both sectors accounted for almost 90 per cent of the corporation tax paid by US multinationals here since 2016.
In a blog, Ifac said that official data from the Revenue Commissioners indicate that about 70 per cent of Ireland’s corporation tax revenues comes from just three sectors: manufacturing (which is dominated by big pharma), information and communication (ICT), and financial and insurance activities.
But the council noted that many ICT and pharma multinationals here have subsidiaries involved in activities outside their main business, such as treasury operations.
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“For economic analysis, it is more appropriate to classify subsidiaries based on the principal activity of the group parent,” it said.
“Under this classification, corporation tax receipts in Ireland would likely be more highly concentrated in two sectors: manufacturing (mainly pharma).” It noted that financial and insurance activities would play a smaller role.
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Using data from the US’s Internal Revenue Service, it calculated that the manufacturing and ICT sectors here accounted for, on average, 87 per cent of the corporation tax paid by large US-owned multinationals in Ireland between July, 2016 and June, 2023.
“This matters when assessing how exposed Ireland’s corporation tax revenues are to tariffs and US trade policy changes more generally,” the council said. “So far, tariff hikes have focused only on goods, while ICT services have not been directly impacted – for now, at least."
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In its blog, Ifac noted that US multinationals were the biggest corporation taxpayers in Ireland, accounting for around three-quarters of all corporation tax revenues.
These receipts are linked to significant levels of economic activity, it said. US multinationals directly employ around 220,000 people in Ireland, with thousands more jobs reliant on their presence here, it said.
The Department of Finance is predicting corporate tax receipts will rise to a record €32 billion this year and to €34 billion in 2026.
Big multinationals with a turnover above €750 million have been liable to pay a new minimum tax rate of 15 per cent since 2024.
They are due to make their initial payments under the new rate next year. This is expected to boost tax receipts here by an additional €3 billion next year and €2 billion in 2027.
Several big taxpayers here have been availing of generous tax-cutting capital allowances which are due to run out, meaning they will be liable to pay more tax – another factor likely to drive receipts.
Ireland has experienced an explosion in corporate tax since 2015, with receipts rising from €4 billion to €28 billion last year, on the back of increased multinational profits and the onshoring of assets here.
Despite repeated warnings about the potential once-off nature of corporation tax receipts, the concentration risk of having so few firms paying the bulk of the money and the inherent volatility of multinational earnings, receipts have continued to surprise on the upside.
