Friday, May 24, 2013

Irish claims on French corporate tax are false

Nicolas Sarkozy, when French president, wanted the Irish corporate tax rate raised from 12.5%. The Irish government insisted that effective tax rates (actual tax paid after various allowances, as a ratio of earnings) applied in France were lower than those levied in Ireland - - but this claim is misleading at best and if believed by people who should know better, reveals them to be of out of their depth.

Sarkozy had picked the wrong target given the stories of massive tax avoidance where the effective rate or the actual level of tax is often none.

Taoiseach Enda Kenny, on a panel with other European prime ministers, at the annual meeting of the World Economic Forum in Davos, Switzerland, said last January, that Ireland is not a tax haven for unorthodox practices and Ireland's tax regime is "very clear, very transparent." He also said the effective corporate tax rate was 11.9% compared with the headline rate of 12.5%. One claim was false and the other was very misleading.

Richard Bruton, jobs minister, in early January had also used the 11.9% rate -  - so it was the agreed government number.

This rate has no relevance to big foreign multinationals in Ireland: there is a 25% R&D tax credit, investment allowances and zero tax on patent income.

Do either Kenny or Bruton, or Michael Noonan, finance minister, know that Microsoft disclosed last year that its fiscal year 2011 effective tax rate in Ireland was 5.69%?

The Irish Examiner reported last month: 'France has lower effective tax rate than Ireland: study':

In France the statutory corporate tax rate is 33.3% while the actual effective tax rate is lower than Ireland’s 12.5% at 8.2%.

Feargal O’Rourke, head of tax at PwC Ireland, said the transparency between Ireland’s statutory and effective tax rates were part of why it was attractive to multinational companies.

“Ireland’s transparent tax regime and low corporate tax rate, together with the relative ease to pay tax, is vital in continuing to underpin the positioning of Ireland as a location of choice for foreign direct investment. This transparency and relative ease to pay taxes is an even more important element in providing us with an opportunity to help multinational corporations establish operations in Ireland,” he said.

The claims are based on a global survey by PwC (PricewaterhouseCoopers) and Feargal O'Rourke knows that his multinational clients do not generally have an effective rate close to 12%.

KPMG, another Big 4 accounting firm says that France's standard corporate tax rate in 2013 is 33.33%.

A 3.3% social contribution is levied on the part of the corporate income tax that exceeds €763,000, resulting in an overall maximum tax rate of 34.43%.

In addition, a temporary 5% surtax is levied on the (full) corporate income tax for entities with a sales turnover over € 250 million. This temporary surtax, which brings the overall maximum tax rate to 36.10%, is expected to apply to financial years (closed) from 31 December 2011 until financial years (closed) on 30 December 2015.

Specific categories of income can benefit from a reduced corporate tax rate under conditions. In particular, licensing fees relating to certain IP rights can benefit from a 15% corporate tax rate (respectively 15.5% or 16.245% taking into account the above two surtaxes). Small and medium size companies with a turnover of €7.63 million or less owned at least 75% by individuals (or owned by companies meeting the same conditions) are subject to a corporate income tax rate of 15%. This reduced rate applies to taxable profits up to € 38,120. These small and medium size companies are not subject to the above-mentioned social contribution and temporary surtax.

The 11.9% rate comes from a report, 'Paying Taxes 2013,' that was produced by PwC.

The case study company is a non-exporting SME:

  • A limited liability company;
  • Produces ceramic flower pots and sells them as a retailer;
  • Operates in the country’s largest business city;
  • Is 100% domestically-owned and has five individual owners;
  • Has purchased capital equipment for use in the business;
  • Has 60 employees;
  • Sells a property and realises a capital gain during the year;
  • Pays a dividend at the end of the year;
  • Is in its second year of operation;
  • Has a trading loss brought forward from previous year.

These are a number of other report links that seek to present a Reality Check:

Apple, taxes, Irish economy and creating 200,000 net jobs

EU to force country-by-country tax transparency on big companies

Noonan not transparent on Apple taxes and US Senate report

Apple shifted "golden goose" and 64% of 2011 income to Irish "shell corporation"

Apple has special Irish tax rates; 'Stateless' companies based in Ireland

Irish Economy: No growth in 2012; 6,500 direct jobs account for 52% of services exports

Irish Economy: Sustainable growth dependent on foreign firms since 1990; Now FDI has peaked

Irish Economy: Actual Individual Consumption per capita in Ireland is at EU average along with Italy; Germany at 20% above and UK at 18% - - Irish GDP per capita is 29 % higher than the EU average but that statistic is misleading.

Irish Economy: Pharmaceutical patent cliff no growth threat; High exports have low impact

Irish Economy: Export growth insufficient to pull domestic economy out of recession

Irish Economy 2012: At least a third of value of Irish services exports is overstated

Dell remains Ireland's biggest manufacturing exporter despite closing Limerick plant

Irish Economy 2012: Only 50,000 Irish direct workers responsible for 69% of annual Irish exports

Irish Economy: Innovation, a failed enterprise policy and inconvenient facts for 2013