Taxing times…

Well now. Reading Brian Keegan’s column on taxation in the SBP I was struck by his critique of David Cullinane, the SF TDs, recent comments that:

…it is blindingly obvious that with 68 per cent of all companies liable for corporation tax in 2015 “Subject to a tax rate of zero…the law is the loophole”.

Unlike speculation regarding the existence of little green men, the TD’s comments are a response to official figures obtained by him on foot of a parliamentary question. They merit some analysis. Why did more than two third of companies pay no corporation tax in 2014.

Before everything, fascinating that he feels the need to conduct this exercise, isn’t it?

Anyhow, away we go.

First up he argues that:

From a tax point of view it is usually cheaper to pay profits out as salaries and pay income tax, PRSI and USC on those salaries than leave accumulated profits in the company. No profit int he company no corporation tax gets paid.

Secondly?

It’s also necessary o think about what companies actually do… sometimes companies are used to put a structure on charitable activities and as such re expect from tax. Many companies, even if not charities, are so-called not for profit ventures… trade associations and the like run for the benefit of their members… the voluntary and semi-state sectors frequently operate through a company to meet legal or regulatory requirements… such companies don’t make profits and therefore they don’t pay corporation tax.

All very interesting. But one would like to know how many of each of these sub-categories there are. Unfortunately that not unimportant detail isn’t provided.

Still he continues by admitting to the fact that:

Then there are the controversial companies which are the target of most of the political and media comment, these would include companies which are Irish-resident but don’t have income which is charged to Irish corporation tax.

Interesting too how he shifts the spotlight away from Irish companies there.

Anyhow, praise of sorts for Cullinane:

To return to Cullinane’s comments, he did well to highlight the proportion of companies which re outside the corporation tax charge.

I don’t think though that it’s a loophole to make company profits chargeable to higher rates of income tax instead of lower rates of corporation tax. Tax loopholes arise when people pay less tax, not more.

And while he also admits too that there may be reason to look at charitable and voluntary sector businesses and where ‘Irish corporation tax starts and stops’ but… for there is a but…

By virtue of what so many of them do, many companies tend not to have profits with the tax charge, or pay them out so that those profits fall subject to income tax. That’s why two thirds of them don’t pay corporation tax.

It will be very educative to see where this discussion goes next. Good on Cullinane and his team for producing questions that elicit this sort of a response.