Friday, March 26, 2021

Latest Country-by-Country Reporting Data for US MNCs

The IRS have published their aggregate statistics for the 2018 country-by-country reports filed with them by US MNCs.  The figures show that companies who came under the scope of the regulation made $7.9 billion of cash payments for corporate income taxes to Ireland.  This was a significant increase on on the $4.3 billion of tax payments that US MNCs made to Ireland in 2016 and the $5.2 billion paid in 2017.

Relative to the population in 2018 (4.857 million) the Corporation Tax payments of US MNCs were equivalent to $1,636, close to €1,400, for every person in the country.  This figure is likely to be larger now. In 2018, revenues from Corporation Tax totalled €10.4 billion, last year they were €11.8 billion.

The IRS reports show that these companies had 151,000 employees in Ireland in 2018 but the benefits of the their presence here extends well beyond that group.  In equivalent terms, it could be said that the Corporation Tax payments US MNCs are making in Ireland are covering the costs of the State pension which had 600,000 beneficiaries in 2018.

Whatever about the relative impact of these tax payments in Ireland, the relative size of them across the EU is remarkable.

IRS CbCR for the EU27 Tax Payments 2018

This chart is not done in per capita terms or as a percent of national income; it is just the nominal figures.  US MNCs make more corporate tax payments to Ireland than they do to any other country in the EU and by some distance.

In total, the MNC groups in the IRS data made $261 billion of cash tax payments in 2018.  Of those three percent were made to Ireland.  Indeed, Ireland was the third-largest of all recipients of corporate tax payments from US MNCs only coming behind the US itself ($140.6 billion) and the UK ($10.9 billion).

Here is a table of outcomes for ten selected jurisdictions as well as the U.S. itself and the outcomes “stateless entities” (most of which likely operate in the U.S.).  All of the figures in the main part of the table are taken directly from the IRS dataset. The last column on the right, average cash tax rate, and the rows at the bottom showing shares are calculated using the IRS data.  Also note that to get a more accurate indicator of the average tax rate the table is “limited to reporting entities with positive profit before income tax”.

IRS CbCR Average Tax Rates Selected Jurisdictions 2018

Assuming there is no double counting, the jurisdictions here account for around 80 per cent of the profit of the reporting groups in the data with the ten selected jurisdictions accounting for around 20 per cent of the total.  The jurisdictions are are ranked by profit before income tax.

This places the US at the top and it is followed by “stateless entities” while the top five of the selected jurisdictions are Bermuda, Singapore, Netherlands, Luxembourg and Switzerland.  Ireland is next.

Ireland would be top of this group if ranked by revenues, cash tax paid or tangible assets and would be third for employees (trailing Singapore and the Netherlands).  Ireland would also be first if the ranking was done by average tax rate.  Indeed, at 11.4 per cent of reported profits before tax, Ireland is the only jurisdiction in the table with an average tax rate that makes it into double digits.

For earlier years in the IRS data the equivalent average tax rates for Ireland were 9.4 per cent in 2016 and 12.8 per cent in 2017.

The IRS figures show that, in 2018, the US MNCs included in this table reported over $100 billion of profit in Bermuda and unsurprisingly paid very little tax there.  Similarly low tax rates are reported for the near $60 billion of profit in the Cayman Islands and the $12 billion in Barbados.

Profits of around $85 billion are reported for both Singapore and the Netherlands with $3 billion of tax paid in Singapore and $4 billion in the Netherlands.  Both of these have average tax rates of less than five percent.  The average tax rate for Luxembourg is even lower: $1 billion of tax on $68 billion of profit giving an average tax rate of 1.5 per cent.

Within the selected ten Ireland could be considered a bit of an anomaly.  Yes, there are large profits but relative to the rest of the group there are high tax payments, high tangible assets and high employee numbers. These conclusions would not be significantly altered if companies reporting negative or zero profit before tax are included.  For Ireland, those companies would add another 30,000 employees bring the total employment in Ireland of US MNCs in the IRS’s CbCR statistics to 150,000. 

The IRS also provide a breakdown of the effective tax rates by country.  They use accrued tax rather than cash tax.  Here is the 2018 breakdown for Ireland.

IRS CbCR Ireland by ETR 2018

The largest group are those with an effective rate of “10% to less than 25%” but there are also significant profits in groups that show an ETR of less than 10% and groups with an ETR of 25% or greater.

The data also gives a sectoral breakdown which we again show for Ireland.

IRS CbCR Ireland by Sector 2018

This shows that the most important sector from an Irish perspective is manufacturing which accounts for the largest share of all the items shown in the table.  There are three times as many employees in US manufacturing groups in Ireland as there are in information groups.

Outside of the selected ten jurisdictions one of the surprising results in the table could be just how low the tax payments to the US itself are.  The average tax rate is below 10 per cent.  It is seems the Tax Cuts and Jobs Act is living up to the first part of its name.

The average effective tax rate in the U.S. for companies reporting a positive profit was 17.6 per cent in 2016. It was 16.0 per cent in 2017 but fell to half of that in 2018, the first year the TCJA was in force.  This outcome is discussed in detail in a recent staff report from the Joint Committee on Taxation in the US Congress. (See section IV.B from page 57 of report JCX-16-21).

Maybe now there will be a bit more focus on the US being the tax haven for US MNCs.

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