Friday, January 4, 2019

Does one-third of Income Tax and PRSI come from IDA client firms?

The IDA summary of their 2018 results includes the following:

IDA Ireland’s clients are also significant employers; with average salaries at €66,000 in 2017 they are consistently above national averages (€46,402). As a result foreign MNCs account for one third of total Income tax, USC and Employers PRSI paid in the state.

Does one-third of Income Tax, USC and PRSI come from IDA client firms? No.  Ireland’s national income is heavily influence by the contribution of foreign-owned MNCs but that does not extend to them being the source of one-third of income tax revenues.

According to the Revenue Commissioners net receipts in 2017 from Income Tax/USC and PRSI came to €28.7 billion in 2016 and €30.2 billion in 2017.  It is easy to see that the IDA claim is incorrect from this summary table.

Impact of FDI on Irish economy

The numbers are impressive but unless almost all the €11.7 billion of payroll from these companies in 2017 went to tax and PRSI there is no way they can contribute one-third from a total of €30.2 billion.

The footnotes to the table state that the IDA’s claim is “based on Revenue analysis of foreign owned multinational employer returns for 2016 of income tax, USC and employer PRSI excluding wholesale and retail trade.”  They are referring to this paper by McCarthy and McGuinness which includes the following figures:

Employment and Payroll Taxes in Companies 2016

We can see that payroll Income Tax, USC and Employer’s PRSI from foreign-owned MNCs came to €6.7 billion in 2016.  This is for all foreign-owned MNCs not just those who are IDA clients.  The IDA note that they exclude firms in the wholesale and retail trades (who won’t be their clients) but are probably still left with a figure that is around €5 billion (which is 45% of the payroll total for 2016 from the first table).

Now, this may be nearly one-third of the €16.7 billion shown for Income Tax, USC and PRSI shown in the table but this is only the amount that arises from companies.  It excludes the self-employed, the public sector and non-labour related sources of income taxes. 

IDA-client firms may be the source of one-third of a particular sub-set of income taxes but that is not what they have claimed. It looks like the answer may be around one-sixth (c.€5 billion out of €30 billion) which is, of itself, pretty significant and substantial.  But with 80 per cent of Corporation Tax coming from foreign-owned MNCs we have enough evidence of concentration risks without the need to be exaggerating their contribution to other tax headings.

4 comments:

  1. Thanks for the clarification. It begs the question, how many other claims are bogus that we do not have sme's like you to refute???

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  2. Good spot Seamus. The IDA are good at what they do but over the years many of their claims have pushed the envelope.

    Also a useful time to point out that there are plenty of non-exporting MNCs in the domestic economy which employ a lot, particularly in the retail sector. These are generally more productive than Irish-owned firms and are a lot of the reason why consumer prices in the retail sector have risen a lot less than overall inflation in the last 15 years.

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