The 12.5% Irish Corporation Tax rate has recently attracted plenty of criticism at EU level. In response, Chartered Accountants Ireland have today strongly defended the 12.5% rate and debunked some of the common arguments used against it.
Their case is outlined in a newly-published position paper ‘Europe and Corporation Tax – Setting the Record Straight’.
The report compares the Irish Corporation Tax system with the corresponding systems in France and Germany, and finds that there are vastly different approaches in each country on how Corporation Tax rates are arrived at, what relief is available for capital investment, and how dividends are treated.
For example, France operates a headline Corporation Tax rate of 33.3%, yet there is a special rate of 15% for companies earning below €38,000 and various other exemptions.
In addition, the allowances for capital investment for French companies are vastly more generous than the capital allowances available in Ireland.
In France, these amount to €6.60 for each €100 invested in machinery, equipment etc, while the equivalent allowance in Ireland is a mere €1.65 per €100 invested.
And the French tax system allows for 40% of company dividends received by an individual to be disregarded for income tax purposes. In Ireland, dividends payable to individuals are fully taxable.
The report concludes that there is no direct correlation between Corporation Tax rates in individual countries and the sums raised from Corporation Tax in each country.
For example, Ireland raises 2.9% of GDP from Corporation Tax in 2008, while France (with a higher ‘headline’ rate) raised 2.8%, and Germany (with a higher rate still) raised 1.1%.
The report puts forward a number of ideas to address unfair tax competition within the EU Single Market and attacks the current EU Common Consolidated Corporate Tax Base proposals.
Well done to Chartered Accountants Ireland for commissioning and publishing this important, and most welcome, report.