# If personal taxes are up to 51% what should Corporation Tax be?



## Brendan Burgess (21 Jul 2021)

I raised this in another thread, but I think it is worth highlighting as it's really a fundamental question.

Imagine if we had no foreign-owned multinational companies in Ireland.

We have a lot of profitable Irish companies selling their stuff in Ireland and abroad.

What would be the right rate of Corporation Tax?

The top rate of Income Tax is 51% including USC but excluding PRSI which does pay for one's pension.

But what should the likes of Ryanair or CRH?

They would pay 12.5% of their profits in taxes.

They pay me a dividend which I then pay 51% tax on.

So if my share of Ryanair's profit before tax is €100.
Ryanair pays 12.5% tax
Net profit after tax : €87,500
My personal taxes 51%: €44,600

Net receipt after tax: €42,900

Effective tax rate: 57%


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## Brendan Burgess (21 Jul 2021)

If I invest directly in a property , I pay 51% tax on the rental profit. 

If I invest in a property via a REIT, it's structured so that I don't get hit with the Corporation Tax as well.  The net tax rate is 51%. 

Brendan


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## 24601 (21 Jul 2021)

What do you think it should be @Brendan Burgess ?


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## Brendan Burgess (21 Jul 2021)

Just checked out Ryanair's tax


It does seem very low.

All I can find is a 2007 article which suggests: 





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						Ryanair pays less tax than boss O'Leary
					

DESPITE earning almost €1.6bn profits over the past five years, Ryanair has paid just €11.6m in tax over the period, the Sunday Independent can reveal. This represents an effective tax rate of less than one per cent.




					www.independent.ie
				




_Analysts reckon that many Ryanair aircraft are owned by subsidiary companies based in tax havens such as Cyprus. The aircraft are then leased back to an Irish operating company. By structuring the ownership of its aircraft in this way Ryanair is able to avail of other countries' front-loaded capital allowances.

Ryanair is also believed to have structured the ownership of its online ticket sales operation in a way that minimises its tax bill. This is understood to be owned by a Channel Islands-registered company, which then charges the parent company a commission for every ticket sold._


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## Brendan Burgess (21 Jul 2021)

OK, I have looked at the effective Corporation Tax rates of the profitable Irish based multinationals:


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## Sophrosyne (21 Jul 2021)

This report from Revenue may assist:

*Corporation Tax – page 7*

“2.4 Ownership Tax records do not provide a complete record of the ‘nationality’ (or country of ownership) of companies operating in Ireland. To address this, Revenue has compiled a marker for companies tax resident in Ireland, distinguishing three categories: Irish owned multinational, foreign owned multinational and non-multinational.

This marker has been enhanced with information from external (non-Revenue) sources in 2020. This enhanced marker identifies 14,545 foreign owned multinationals and 2,821 Irish owned multinationals from the 167,769 companies active on Revenue records (filing returns for 2019). As shown in Figure 3, foreign owned multinationals paid €9,657 billion (*82 per cent of net CT receipts*), Irish owned multinationals €841 million (7 per cent) and non-multinationals €1.335 billion (11 per cent).

*Payroll Taxes – page 1*

Over 2.4m employments in companies, with combined Income Tax, USC and PRSI payments for these employees of €21.5bn. *Foreign multinationals account for 32% of employment and 49% of employment taxes.*


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## Protocol (21 Jul 2021)

You seem to asking what are optimal taxes, and optimal tax rates?

There is a whole area of economics devoted to these questions.





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						Optimal tax - Wikipedia
					






					en.wikipedia.org
				






			https://scholar.harvard.edu/files/mankiw/files/optimal_taxation_in_theory.pdf
		




			https://ifs.org.uk/docs/taxbydesign.pdf


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## Protocol (21 Jul 2021)

https://ifs.org.uk/uploads/mirrleesreview/dimensions/ch9.pdf
		


Mirrlees conducted a review of taxation.


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## Brendan Burgess (21 Jul 2021)

Hi Protocol

Not really. I am thinking what is fair rather than what is optimal. I know my optimal tax rate.  

I have not yet given a lot of consideration to it, but my initial views to kick off the discussion are

1) Personal income tax rates and Corporate Tax rates should be integrated.
2) If CRH in which I have shares pays 30% CT, I should get some credit for that. 
3) A company like Ryanair, in which I have shares,  should pay more than 3% on its worldwide profits - if it makes those profits in low tax jurisdictions, it should pay the balance to the Irish Exchequer.
4) If Ryanair does not distribute its profits, then I don't get a tax credit.  Should I get one against CGT? 

As a general principle, individuals and companies should pay fair taxes and no country should be facilitating them to avoid paying fair taxes.  If another country does allow an individual to avoid taxes, then we should adapt our laws to tax them here in Ireland. 

Brendan


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## jpd (21 Jul 2021)

Which is exactly what the USA is doing - they think fair is 15% - we think fair is 12.5%


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## Brendan Burgess (21 Jul 2021)

jpd said:


> we think fair is 12.5%



I don't think we have thought at all of fairness.. It's what we can get away with to attract foreign investment.


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## Sophrosyne (21 Jul 2021)

There must be some rational economic basis for what is “fair” though.

We have a tiny indigenous economy by international standards.

Taxation is a balancing act. The choices are to impose cripplingly high taxes, such as in the 1970s, or grow the economy so that more individuals and companies contribute to lower the general burden of taxation.

You started by saying “Imagine if we had no foreign-owned multinational companies in Ireland”.

The Revenue report shows the amount of CT and payroll taxes paid by foreign multinationals and their employees.

Subtract them from the tax receipts and then where do we go to decide what is fair?


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## MrEarl (21 Jul 2021)

Don't companies also pay a further tax, on after tax profits, that aren't distributed?


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## MrEarl (21 Jul 2021)

I think the current system of having low corporation tax, and higher personal taxes, is the right one for Ireland -  simply because we need to attract in foreign employers, otherwise a lot less people earn, and the personal tax rate doesn't matter!

Now, what we could look harder at, is having a way to apply a higher / penal rate on corporates that aren't employing people here - given their net contribution to the economy is a lot less.


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## Brendan Burgess (21 Jul 2021)

MrEarl said:


> Don't companies also pay a further tax, on after tax profits, that aren't distributed?



Only small companies known as close companies and I think it's not on trading income anyway.

Brendan


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## Purple (21 Jul 2021)

MrEarl said:


> I think the current system of having low corporation tax, and higher personal taxes, is the right one for Ireland - simply because we need to attract in foreign employers, otherwise a lot less people earn, and the personal tax rate doesn't matter!


Exactly. Capital is far more mobile than people. 

As a rule I think everyone who earns an income should pay some income tax and the total marginal rate should not be above 50%. A good start would be to change the USC back to the way it was when it was first introduced.


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## NoRegretsCoyote (22 Jul 2021)

MrEarl said:


> I think the current system of having low corporation tax, and higher personal taxes, is the right one for Ireland - simply because we need to attract in foreign employers, otherwise a lot less people earn, and the personal tax rate doesn't matter!



Exactly! US employers in Ireland pay something close to US wages which are taxed in Ireland much higher than they would be in the US.

Hence MNC employees pay half of all tax from the private sector despite being only a third of employees:



Sophrosyne said:


> Over 2.4m employments in companies, with combined Income Tax, USC and PRSI payments for these employees of €21.5bn. *Foreign multinationals account for 32% of employment and 49% of employment taxes.*



This is swings and roundabouts stuff. What Ireland loses on corporation tax it makes up on income tax.


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## Sophrosyne (22 Jul 2021)

NoRegretsCoyote said:


> Hence MNC employees pay half of *all tax from the private sector* despite being only a third of employees:


That's not quite what the reports says.

The report is about companies only.

The 49% refers to the percentage of payroll taxes paid by foreign multinational company employees compared to all *company *employees.


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## NoRegretsCoyote (22 Jul 2021)

Sophrosyne said:


> ompared to all *company *employees.


Yes indeed, the business economy includes employees of firms and also *the self-employed*.

But I suspect self-employed whose income derives solely or mainly from MNCs is much higher on average too.


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## Purple (23 Jul 2021)

Brendan Burgess said:


> If I invest directly in a property , I pay 51% tax on the rental profit.
> 
> If I invest in a property via a REIT, it's structured so that I don't get hit with the Corporation Tax as well.  The net tax rate is 51%.
> 
> Brendan


Your point in the first two posts is interesting. We look at Corporate profits as it the company is a person who is only paying 12.5% tax. In reality any profit made is owned by the shareholders who in effect are double taxed on it if they draw it as income. I don't think that's unfair but it is good to frame the discussion in that context.
That said I'm a shareholder in a private company and I don't really think of it as double taxation.


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## Nermal (23 Jul 2021)

Corporate tax should be 0%.

Capital gains and dividends should both be taxed at same rate as other income. That rate should not be anywhere near 51%.


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## kinnjohn (23 Jul 2021)

Nermal said:


> Corporate tax should be 0%.
> 
> Capital gains and dividends should both be taxed at same rate as other income. That rate should not be anywhere near 51%.


If we had 0% corporation tax Capital gains and dividends would have to be taxed away over 50% to make up for the 11billion in corporation tax lost a good % gifting to other countries,
Germany rate is 30% at present,

If our corporation tax gets changed as suggested we should link it to the USA rate,
As I understand some of the proposed changes by the USA and others is
If the Irish rate is 15% and the USA rate is 20%
USA companies in Ireland will pay the Irish 15% and pay the USA another 5% for a total of 20%
 USA rate
On the other hand, If Ireland charged  20 % the USA will get 0% seeing the Irish rate is the same as the USA,
seeing most corporation tax is paid by USA Companies in Ireland we might as well take the total corporation tax due in Ireland by linking it to the USA rate,
I am sure it is not as simple as stated above but there is no point in Ireland having a low rate and the USA charging extra to reach their rate
We would also need to keep a close eye on the UK rate so they do not undercut Ireland,


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## Brendan Burgess (23 Jul 2021)

Nermal said:


> Corporate tax should be 0%.
> 
> Capital gains and dividends should both be taxed at same rate as other income.



If you tax them at 0%, then they could retain all their profits and no tax would be paid at all. 

Why not tax Corporation Tax profits at the same rate as Income Tax and give a full credit for them? 

Let's say 40% 

So company  makes €100m profit and pays €40m Corporation Tax.

I get a dividend of €600 from the company. I put €1,000 as gross income on my tax return and get a credit of €400.

If my marginal rate of tax is 40%, I pay no further tax. 
If my marginal tax is 0%, I get a refund of €400. 

And get rid of CGT on sale of company shares.  As it would be a double tax of any retained profit. 

Brendan


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## Sophrosyne (24 Jul 2021)

If the CT rate rose to 40% as mentioned, we must think of the consequential effect on the cost of the product or service and the amount of the distribution to shareholders.

Even in the domestic market, Irish companies compete with foreign counterparts for the sale of goods and services _and_ for investors.


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## Zenith63 (24 Jul 2021)

Nermal said:


> Corporate tax should be 0%.
> 
> Capital gains and dividends should both be taxed at same rate as other income. That rate should not be anywhere near 51%.


That was my initial position as well. The profits will be taxed when they are inevitably passed to an individual, so why bother with the complexity of corporation tax or equating corporate and personal incomes.

It doesn’t work well when it comes to international companies like Google/Facebook/Amazon though. They would generate profit in countries all over the world, then extract that from the local economies back to whatever country they came from (often the US). In 10/20/30 years there could be a global company in virtually every walk of life, extracting money from the economies of smaller countries. So I think countries should charge corporation tax in each country where a company makes a profit, it’s only fair.

A single rate that all countries agree on would seem like a good idea.


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## Brendan Burgess (24 Jul 2021)

Zenith63 said:


> A single rate that all countries agree on would seem like a good idea.



Agreed.

Or, as proposed, a minimum rate for all countries.

Brendan


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## NoRegretsCoyote (25 Jul 2021)

Brendan Burgess said:


> And get rid of CGT on sale of company shares.


CGT dates from the time when it was difficult for the state to value your wealth in real time. A taxable event occurred when you sold your assets, and taxes are also more palatable when you have a chunk of cash to pay them.


CGT might still make sense for small businesses and land which can be hard to value. But it makes more sense now to tax property and financially assets annually via a recurrent wealth tax.

We've already started this with LPT. I would just have a higher LPT rate for landlords and do away with CGT for residential property entirely.

The anachronism that the CGT liability dies when the person dies would no longer be relevant if you just had a wealth tax too.


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## Purple (26 Jul 2021)

Brendan Burgess said:


> If you tax them at 0%, then they could retain all their profits and no tax would be paid at all.
> 
> Why not tax Corporation Tax profits at the same rate as Income Tax and give a full credit for them?
> 
> ...


A company, for tax purposes, is like a person. When I earn money I pay income tax. If I pay you from my after tax income then you pay income tax. Think of Corporation Tax as the income tax the company pays. 
There is all sorts of double taxation. VAT is double taxation since we pay it on goods and services we purchase from our after tax income. The same goes for other forms of duties, service charges and transaction taxes. Why should Corporation Tax be different?


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## Purple (26 Jul 2021)

NoRegretsCoyote said:


> We've already started this with LPT. I would just have a higher LPT rate for landlords and do away with CGT for residential property entirely.
> 
> The anachronism that the CGT liability dies when the person dies would no longer be relevant if you just had a wealth tax too.


Good idea; just tax the asset, the wealth, each year. Whomever owns it that year pays the tax.


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## kinnjohn (26 Jul 2021)

Purple said:


> Good idea; just tax the asset, the wealth, each year. Whomever owns it that year pays the tax.


The problem is FF/FG/LAB  would see their support base disappear overnight, if the supported such a move,


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## Purple (26 Jul 2021)

kinnjohn said:


> The problem is FF/FG/LAB  would see their support base disappear overnight, if the supported such a move,


Labour certainly would as they are the party of the idle rich


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## kinnjohn (26 Jul 2021)

Purple said:


> Labour certainly would as they are the party of the idle rich


na FF/FG are better at taking a few extra quid each year off their rich supporters and still managing to hold on to them,
 When the PD disappeared their former supporters went in all directions any that went back to FF/FG left their coats on in case they needed to move in a hurry,
Labour is not as good as you can see by their support base,
Back to the tread,
If personal taxes are up to 51% at present they were a lot higher in the past when Irish Corporation taxes  were higher,
 in the future, if we are foolish enough to raise Corporation taxes higher than the USA rate
Personal marginal tax rates  will have to be away higher than they are at present, on above-average incomes,
My view is Corporation Tax should be at or below  the USA/UK rate at all times,


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## presidenttttt (2 Aug 2021)

If companies paid 12.5% would that not be a start? Several major organisations pay far less, if anything. I am surprised Ireland is digging in over 15% movement, when they have loads of options to charge 15% and give xx% of it back. We are making ourselves international villains. I think that will have a cost, the companies we are playing up to don't do sentiment or optics, they do numbers, so why damage relations with other countries.

Ryanair is already spreading its eggs into different baskets,  with Polish and Malta subsidiaries, at the same time as the irish tax model and regulation model comes under on going scrutiny.

I am not sure how CRH manage to end up paying so much tax, is that a mistake?

Companies like CRH should make more positive PR around contributing to society if they are not gaming the system like others.


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