Paying Taxes 2016

Jan 15, 2016

The PwC / World Bank Group report, published in Ireland today, highlights Ireland’s strengths on tax at a time when Governments are focused on international tax transparency and companies paying the appropriate amount of tax in the appropriate jurisdiction.

Ireland continues to be most effective country in the EU in which to pay business taxes and 6th most effective worldwide. For example, the OECD is looking to eliminate various mechanisms by which companies pay less than the statutory rate of tax. Ireland has a low but clear rate of tax on corporate income of 12.5%. The report highlights that this is very close to Ireland’s ‘profit tax’ or effective tax rate of 12.4%.

A number of actions under the recent Base Erosion Profit Shifting proposals incentivises, and in some cases requires, companies to have ‘substance’ where they earn profits. This generally means companies must have a significant presence in terms of people. The report is very interesting in this regard with respect to employment tax and highlights that Ireland’s ‘labour tax’ paid by companies is 12.1% compared to 26.5% for the EU and 16.2% globally.

Speaking at the launch, Joe Tynan, PwC Ireland’s Head of Tax, said: “The report confirms that Ireland is competitive on corporate taxes but also on the costs of employing people. The OECD and the EU are pushing companies to allocate their profits to locations where they have employees and places of management and away from locations without substance. Ireland places a comparatively reasonable tax burden on employment. This will be important as International companies decide where to locate key international centres. We may be seeing the start of this as employment in the FDI sector is on the increase as well as a significant increase in corporation tax payments.”

The study is based on a case study which is a medium sized company (refer to page 9 of report). It is set up so that it can be compared on a like for like basis across 189 countries. It shows that, on average, a medium sized company in Ireland similar to the case study will pay a total of 25.9% of its profits in taxes.  This is made up of 12.4% in profit taxes, which is very close to our corporate tax rate of 12.5%, 12.1% in labour taxes (which in Ireland this is mostly PRSI) and 1.4% in other taxes (e.g. VRT, etc).

How does Ireland compare?

(See pages 122, 123 and 124)

Total profit tax paid by companies in the EU and European Free Trade Association (EFTA) is 40.6%, comprising profit taxes of 12.6%, labour taxes of 26.5% and 1.5% in other taxes. In Ireland our total taxes are 25.9%, comprising 12.4% profit taxes, 12.1% labour taxes and 1.4% other taxes. As can be seen, the big difference arises on labour taxes where Ireland is substantially more competitive on the cost of employing people.

Globally, total profit tax paid is 40.8%, comprising 16.2% profit taxes, 16.2% labour taxes and 8.4% other taxes.

  Profit Taxes Labour Taxes
Other Taxes Total
Global 16.2 16.2 8.4 40.8
EU & EFTA 12.6 26.5 1.5 40.6
Ireland 12.4 12.1 1.4 25.9

The report further confirms that Ireland's tax system ranks as the most effective in the EU for paying business taxes - PwC/World Bank Group report confirms. Ireland continues to be the most effective country in the EU to pay business taxes and the sixth most effective in the world. This means that Ireland's tax system continues to be one of the most efficient in terms of bureaucracy and administrative burden when it comes to paying, filing, time spent and the amount of tax levied on businesses. The report covers 189 economies worldwide and looks at all taxes paid by businesses, using broad principles from PwC’s Total Tax Contribution Framework.

According to the study, a typical Irish company spends around a quarter of its total commercial profit in taxes, spends just over two weeks dealing with its tax affairs and makes a tax payment nearly every six weeks. Globally this compares to the typical company paying over a third of its commercial profit in taxes, spending over seven weeks dealing with its tax affairs and making a tax payment every 2 weeks.

The ranking by PwC / The World Bank Group report is unique as it looks beyond corporate income tax to all of the other business taxes paid and is a measure of effectiveness of tax systems around the world. The Paying Taxes 2016 report measures the ease of paying taxes by assessing the administrative burden for companies to comply with tax regulations, and by calculating companies’ total tax liability as a percentage of pre-tax profits. Paying Taxes 2016 measures all mandatory taxes and contributions that a medium-size company must pay in a given year. Taxes and contributions measured include the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and other small taxes, such as fuel taxes, or fees.

It shows how businesses are affected not only by tax rates, but also by the procedural burden of compliance. The report focuses on three indicators which are used to determine the overall ease of paying taxes which are:

  • The cost of taxes, which is measured by the total tax rate (Ireland ranked 5th in the EU with 25.9%); The average Total Tax Rate for the region is 40.6%
  • The time it takes to comply (Ireland ranked 5th in the EU with 82 hours); The average time to comply across the region is 173 hours
  • The number of tax payments made.  Ireland’s number of payments is 9 compared to the average for the region of 11.5

Ireland’s ability to cope with multiple tax payments and at the same time to have a system that eases the administrative burden is a credit to our regulatory and tax authorities. Taxes are a significant issue for business and the fact that we continue to hold our rank in this area is critical for continued investment in Ireland.

Speaking about the Irish results, Joe Tynan, PwC Ireland’s Head of Tax, said: “The survey demonstrates that, having a simpler tax systems with competitive  business tax rates and a robust and transparent tax regime, gives Ireland a real advantage in the market for attracting direct investment. The survey confirms that Ireland's tax system continues is one of the most effective and straightforward in the EU.  While no-one likes paying tax, the Irish tax system makes it relatively easy to comply with the rules and is much less bureaucratic system compared to other EU countries.

"The survey further demonstrates that Ireland's statutory headline rate on profits is broadly similar to the effective rate. The study uses a case study approach so that the same circumstances can be compared across a large number of companies. For many EU countries, the statutory headline rate is significantly higher than the effective rate. When you take labour and other taxes into account, Ireland's total tax rate on corporate profits is much lower (25.9%) when compared with other EU countries (EU average: 40.6%).

“Ireland’s transparent tax regime and low corporate tax rate together with the relative ease to pay tax is vital in continuing to underpin the positioning of Ireland as a location of choice for foreign direct investment. This transparency and relative ease to pay taxes together with 72 treaties and world class R&D tax credit system are important elements in providing us with an opportunity to help multinational corporations establish operations in Ireland as well as expand their operations here”.

Economic analysis undertaken by PwC and featured in the report shows that economies where action was taken to reduce complexity in tax administration – both in terms of the number of payments and the time taken with tax matters – there has tended to be higher economic growth.

Top 10 rankings for the EU countries on ease of paying taxes are, in order, are: Ireland, Denmark, Norway, UK, Finland, Switzerland, Luxembourg, Malta, Netherlands and Latvia.

The top 10 worldwide economies for ease of paying taxes are, in order: Joint first: Qatar and United Arab Emirates, Saudi Arabia, Hong Kong, Singapore, Ireland, Macedonia, Bahrain, Canada and Oman.

Joe Tynan, PwC Ireland’s Head of Tax, concluded: “Globally, tax reform is set to remain an important topic for governments for some years to come. Multinationals will have to respond to the new requirements on transparency and they will have to demonstrate to Revenue Authorities that their profits are earned in the appropriate locations. Ireland is positioning itself to compete with a transparent rules based system that allows companies to pay a low but fair amount of corporate tax and encourages companies to employ additional people in Ireland. This survey confirms Ireland a s good place to do business in a post BEPS world.”


Notes to editors:

Please refer to pages 122, 123 and 124 for comparisons of Ireland with other EU countries.

European Union and European Free Trade Association (EU & EFTA)

The following economies are included in the EU and EFTA : Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom.

  1. Paying Taxes 2016 measures all mandatory taxes and contributions that a medium-size company must pay in a given year. Taxes and contributions measured include the profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and other small taxes or fees. For more information, visit Paying Taxes study.
  2. The Paying Taxes annual report builds on the World Bank Group’s Doing Business reports’ chapter on Paying Taxes.
  3. In PwC’s 18th Annual Global CEO Survey, tax remains in the top five of the perceived issues for business, with seven in ten CEOs (70%) somewhat or extremely concerned about the increasing tax levied on their businesses. taxes and environmental.
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