Corporation Tax: Convenient facts
gain an easy audience, even though often misleading and in the dispute between
Ireland and France on corporate taxes, we have arguments about the effective
corporate tax rates (the rate after offsetting credits/allowances) in the two
jurisdictions. However, a useful factoid is not all that it seems.
Last Tuesday Michael Noonan, Irish
finance minister, briefed a breakfast meeting of centre-right finance ministers
in the European People’s Party (EPP) group, on the Irish economy.
“I briefed them on the Irish situation and particularly on the corporate tax
rate, and there was significant support for Ireland’s position,” Noonan told
“I was pointing out to them that, while our rate was 12.5%, we had eliminated
practically all allowances so our effective rate was over 11%, whereas France,
with a 32% nominal rate, had an effective rate of 8.1, the research would show.”
Last week, in The Financial
Times, Peter Sutherland, chairman of Goldman Sachs International
said: "...we should note that in a World Bank-PwC
Report it has been established that the actual rate of tax paid, for example, in
France is 8.2% and is even lower elsewhere."
The World Bank teamed up with
accounting firm, PricewaterhouseCoopers (PwC) and the template for determining
'commercial profit' and 'a total tax rate,' was a 100% owned domestic new SME
company that is a ceramic flowerpot manufacturer with no exports or imports.
To get to an effective rate of 8.2% in France from a headline rate of over 34%
(33.33% along with a surcharge of 3%) would require some very attractive
credits/allowances. However, what is compared is 'commercial profit' related to
tax paid. Commercial profit is computed by adding back taxes such as social
security costs, which are generally tax deductible.
In France, a 15% rate applies to the first €38,120 of taxable profit of
companies with turnover excluding VAT of less than €7,630,000 in the tax year or
tax period, reduced where relevant to twelve months.
The World Bank’s ‘Doing
Business 2011′ report has a profit tax rate of 8.2% for France and 11.9% for
The World Bank said the methodology
for calculating the total tax rate is broadly consistent with the Total Tax
Contribution framework developed by PWC and the calculation within this
framework for taxes borne. But while the work undertaken by
PricewaterhouseCoopers is usually based on data received from the largest
companies in the economy, Doing Business focuses on a case study for
standardized medium-size company.
The methodology for the paying taxes
indicators has further benefited from discussion with members of the
International Tax Dialogue, which led to a refinement of the questions on the
time to pay taxes indicator in the survey instrument and the collection of pilot
data on the labour tax wedge for further research.
Using PwC data in respect of 2004, a
paper published in the American Economic Journal in July 2010, puts the Irish
effective tax rate for the SME standard firm at 9.62% and France at 14.06%:
The Effect of Corporate Taxes on Investment and
Entrepreneurship" (with S. Djankov, T.
Ganser, C. McLiesh, and R. Ramalho), American Economic Journal:
Macroeconomics, July, 2010.
Download data here (Excel).
economists at the
American Enterprise Institute put the French effective rate at 27.5% and the
Irish rate at 10.9% - - these are the figures that are relevant in respect of
multinational investment rather than a typical SME.
On Wednesday, The Irish Times
reported that a spokesperson for Christine Lagarde, French finance minister, told
the newspaper that it is “inaccurate” to say that France
had a lower effective corporate tax rate than Ireland.
the nominal French rate was 33.3%, although companies
could benefit from certain allowances by investing in research
and hiring older people, for example.
“But it’s not at all automatic. There are a lot of companies
that don’t avail of these mechanisms, and they pay 33.3%,” the spokesman added, “so it is inaccurate to say that in
France it’s lower than in Ireland.
“If you don’t avail of these possibilities . . . you pay the
maximum tax rate, and that maximum is a lot higher than in
On issues of fact,
the US Bureau of Economic Analysis has published data which
shows that the combined net profit of US corporations in Ireland
doubled between 1999 and 2002 from $13.4bn to $26.8bn and was
$48bn in Ireland in 2005, compared with $37.01bn in the UK and
$74.06bn in the Netherlands. US companies in Germany made net
profits of $11.22bn in 2005; French affiliates reported income
of $9.52bn and Italian operations made $8.58bn. More