DESPITE ITS REPUTATION as a tax haven, Ireland is one of the few countries in Europe where the headline company tax rate comes even close to what corporations are handing over to the government on their profits.
Meanwhile, nations like France, Belgium and Luxembourg have been charging companies as little as one-sixth of their official corporate tax rates.
A new report from PwC and the World Bank found Ireland had one of the most efficient company tax systems in the world and the best in Europe when it came to total taxes on business and the time involved in satisfying its regulations.
Across western Europe last year, the average total tax rate, which includes taxes on profits, labour, property, vehicles and other tariffs, was 41% and compliance time stood at 176 hours.
In comparison, Ireland’s total tax rate was only 25.9% and the amount of time it took to complete the necessary paperwork was only 80 hours.
Just under half, or 12.4%, of the total tax bill for companies in Ireland came in taxes on profits. That figure is just under the Republic’s headline corporate tax rate of 12.5%.
But although Ireland’s low tax rate has been criticised for forcing a “race to the bottom” as European countries compete to attract corporate investment, the report found the taxes levied on profits across the region were little higher – only 13.1% on average.
It was in much higher labour taxes that other countries made up the balance of their higher tax bills, with the Europe-wide average for these tariffs sitting at 26.3%, compared to 12.1% in the Republic.
The French connection
Meanwhile in France, which has one of the highest official corporate tax rates in Europe at 33.33%, companies were only paying a tax on profits of 7.4% – although they were slugged with an overall tax bill of 66.6% thanks to massive labour and other taxes.
Then-French President Nicholas Sarkozy was among many world leaders to take aim at Ireland’s corporate tax system when in 2011 he said the country shouldn’t be asking for bailout money when it was taxing company profits at half the rate that other European nations were charging.
Perhaps not surprisingly after the recent “luxleaks” revelations, the report said Luxembourg had the lowest actual taxes on company profits in Europe at only 4.2% – more than 6 times lower than its official rate of 29.22% for 2013.
Under the leadership of now-European Commission president Jean-Claude Juncker, the tiny duchy allowed multinationals like IKEA, Pepsi and Irish food firm Glanbia to syphon billions in profits through the country while paying a pittance in tax.
And the winner is…
But the prize for the biggest difference between claimed and actual corporate tax rates went to neighbouring Belgium, where the official rate stood at 34% but the report said companies were handing over 6.5% on their profits.
And it wasn’t just European countries that showed big gaps between their official rates and the real amount companies were paying.
In Canada, the tax on profits stood at only 3.9% – against an official rate of 26%. Even with labour and miscellaneous company taxes thrown in the standard corporate tax bill came in below the headline figure, at only 21%.
Overall, Ireland was ranked 6th in the world for the efficiency of its corporate tax system – the top country in Europe on a scale that was dominated by Middle Eastern countries like Qatar and Asian city-states Singapore and Hong Kong.