Friday, December 1, 2017

The Aggregate Corporation Tax Computation for Companies with Net Income of More than €10 million

The last post looked at the corporation tax computation for companies with no net trading income.  Here we look at the other end of the scale and consider the aggregate outcome for companies with net trading income of more than €10 million.  Companies in this category make up about 500 of the 145,000 or so companies who filed tax returns for accounting periods ending in 2015.  It should also be noted that the composition of companies in the subgroup may differ across years.

Again, we will show a comparison between the figures for all companies and those in the chosen subgroup.    

Corporation Tax Computation for Companies with 10m Trading Income

Unsurprisingly these companies with the largest net trading income are the source of most on the net trading income in the economy.  Around 88 per cent of net trading income in 2015 (€72.4 billion out of €82.7 billion) arose in companies with a net trading income of more than €10 million.  

Perhaps surprisingly these companies only generated 56 per cent of the starting point: gross trading profits.  These reflects large use of capital allowances and previous losses by other companies especially, as we saw, companies with no net trading income.  The companies here has 16 per cent of the available capital allowances and, for 2015 at least, has less than two per cent of the available prior losses carried forward.

Of other income, these companies reported less than ten per cent of the total amount of rental income and foreign income but did have more than 40 per cent of the capital gains included in the Corporation Tax returns.

Unfortunately we are not given a breakdown of trade charges and group relief by range of net income but it is clear that the vast majority of these arise in these companies.  Before deductions and charges these companies had a Total Income of €74.2 billion in 2015 which after those items translated in a Taxable Income of €45.9 billion. 

Trade charges primarily refers to certain royalty payments.  We would usually expect such expenditure to be included as a deduction when Gross Trading Profits are being derived but Irish legislation set out that certain payments may not be deductible but rather should be deducted as a ‘charge on income’.   Hence we get Trade Charges between Total Income and Taxable Income.

Anyway, our companies with net trading income of more than €10 million had €45.9 billion of Taxable Income in 2015 and 0n this €5.1 billion of Corporation Tax was due giving tax due as a proportion of taxable income of 11.2 per cent in 2015.

The main reason for this being below the heading 12.5 per cent is the use of the R&D credit.  We don’t get a full breakdown of this but we can see that about 85 per cent of the R&D credit used against tax in the current year goes to these companies.  A split of the €359 million for the payment of the excess R&D credit would be nice but it is not provided.

To conclude, perhaps surprising is the amount of Double Tax Relief granted to these companies.  In 2015, they reported Foreign Income of €343 million but were granted €155 million of Double Tax Relief – €155 million is 31 per cent of €497 million (being the sum of the (after-tax) foreign income and the double tax relief).

2 comments:

  1. The 343 foreign income is pre-tax but the double tax relief is likely also in respect of trading profits, on software royalties or interest income or foreign trading branches. The DTR is limited to the Irish tax on the item of income, so max 25% or 12.5% of the 343 (which probably represents dividends or non trading interest from abroad).

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  2. Thanks for showing the comparison!
    That was very informative

    Small Business Tax

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