Friday, April 29, 2022

Ireland in the Country-By-Country Reports of US MNEs

The IRS have published the latest update of their aggregate statistics compiled from the country-by-country reports filed with it by US MNEs.  The latest figures cover 2019.  The data are useful but have some limitations. Here we will look at some of the aggregate outcomes for Ireland and compare some to other countries.

The headline figures for Ireland are:

IRS CbCR Ireland Aggregates 2019

There are 632 reporting groups in the IRS data.  In total, they reported that they had around 163,000 employees in Ireland (2018: 151,000).

Some of the financial outcomes are immense. The companies report $735 billion of revenue, $55 billion of profit and $10 billion of tax. In 2018, these were $690 billion, $50 billion and $8 billion.

This might seem to imply an effective tax rate in 2019 of 18 per cent but the figures in the above table include entities that were loss making.  This pulls down the overall profit figure while having limited impact on the tax figure. When restricted to entities with positive profits an average tax rate of 13 per cent is found.

There is also a useful breakdown by economic sector with outcomes for 2019 shown below.

IRS CbCR Ireland by Sector 2019

Manufacturing has the largest figure for employment (72,000).  There are also significant levels of employment in the sector encompassing Wholesale and retail trade, transportation and warehousing and in the Information sector.

When looking at tax payments, 2019 marks the first year when payments from the Information sector exceeded those from Manufacturing.  Between them, those two sectors they accounted for 90 per cent of the corporate tax paid by Irish entities in the CbC reports of US MNEs.  Payments in 2019 from US firms in the Manufacturing sector came to $4.1 billion and in the Information sector they were $4.6 billion.

The growth in the income tax paid (on cash basis) in the last few years has been extraordinary. 

IRS CbCR Tax Paid by Sector Ireland 2016-2019

The IRS CbCR data go back to 2016. In that year the total tax paid (on cash basis) for entities in Ireland was $4.3 billion.  The $10 billion figure for 2019 was more than double that and given what we have seen with Irish Corporation Tax receipts since then the figures in subsequent IRS updates will be even higher.

It is also worth putting the payments in Ireland in the context of the tax payments made by US MNEs in other countries.  Here are the 2019 figures for the EU27.

IRS CbCR for the EU27 Tax Payments 2019

In 2019, US MNEs paid more corporate tax in Ireland than in any other EU country.  Indeed, the payments in Ireland were the third-highest in the world, trailing only the US itself (obviously) and the UK.

In total, the US MNEs in the IRS data paid $329 billion of corporate tax in 2019.  Of that, $204 billion was paid to the US. The next largest recipient was the UK with receipts of $10.6 billion.  In third spot is Ireland at $10.0 billion.  There aren’t many things Ireland comes third in the world at, but tax receipts from US MNEs is one of them.

The nominal figures don’t give a sense of the relative importance of the tax receipts from US MNEs to each country.  Here are the receipts of the EU27 but scaled to each counties Gross National Income (GNI).

IRS CbCR for the EU27 Tax Payments to GNI 2019

Using GNI*, the corporate tax payments of US MNEs were equivalent to just over four per cent of Ireland’s national income.  This is double the level of the second-highest and eight times that of the third-highest.

We can also do a quick comparison of profits, assets, employment and effective cash tax rates in the US, Ireland and some selected jurisdictions.  The US continues to tolerate “stateless entities” so these are also included in the below table.

IRS CbCR Average Tax Rates Selected Jurisdictions 2019

The total share in the bottom panel shows that these jurisdictions cover a large share of the activities in the US MNEs in the IRS CbCR data, though it should be noted that the coverage of the table is “limited to reporting entities with positive profit before income tax”.  This is to get average cash tax rates that better reflect the tax burden on profits.

The largest amounts are understandably in the US itself with more than half of profits, tax, assets and employment recorded there. 

The selected ten jurisdictions, including Ireland, account for one-fifth of profit but only eight per cent of tax, five per cent of assets and just two per cent of employment.  The profit/employment mismatch is most evident for The Cayman Islands, Bermuda and Barbados.  These jurisdictions are also those with the lowest average cash tax rates (all below one per cent).

In aggregate, the companies and entities in this data faced an average cash tax rate of 11.8 per cent in 2018.  In Ireland, the average cash tax rate was 13.0 per cent, which was by far the highest of the selected ten jurisdictions.  Singapore was next highest at 5.6 per cent.

To conclude here is a comparison of the employment figures for the EU27 in the IRS data.  It takes the number of employees for each country and puts it as a share of that country’s population.

IRS CbCR Employees as Share of Population EU27 2019

For the Eu27 as a whole, the MNEs in the IRS data report that they has 2.65 million employees in 2029.  That is equivalent to 0.6 per cent of the population of the EU27 on January 1st of 2019 (446 million).

The national shares range from 3.3 per cent in Ireland (163,000 in population of 4.9 million) to 0.1 per cent in Latvia (1,800 in population of 1.9 million).

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