Ireland continues to be most effective country in the EU in which to pay business taxes and the fourth most effective worldwide, according to the PwC/World Bank Group Paying Taxes report for 2019.
The report also reveals that Ireland is an attractive location in which to establish business. It also performs strongly on tax contribution rate and compliance metrics, as well as having a very competitive tax system in terms of cost and compliance.
The analysis further demonstrates that Ireland's statutory headline rate on profits is broadly similar to the effective rate. For many EU countries, the statutory headline rate is significantly higher than the effective rate.
“Ranking as the most effective in the EU for paying taxes, Ireland remains a very attractive location in which to do business."
Head of Tax for PwC Ireland Joe Tynan said: “Ranking as the most effective in the EU for paying taxes, Ireland remains a very attractive location in which to do business. The report highlights that Ireland does very well in terms of tax competitiveness. And when you take labour and other taxes into account, Ireland's total tax rate on corporate profits is much lower when compared with many other EU countries such as the UK, Germany, Sweden and France and also the US and China.”
The more efficient a tax system the better it is for business which in turn helps promote economic growth and investment. Paying Taxes 2019 draws upon a comparison of the taxation of businesses in 190 economies. The report models business taxation in each economy using a medium-sized domestic case study company.
Paying taxes 2019 also illustrates how developments in tax software, real time reporting and data analytics are transforming the capabilities of tax administration. Ireland performs very well compared to EU and global standards when you look at time spent on tax administration.
Peter Reilly, Tax Policy Leader, PwC Ireland, said: “Businesses have a huge opportunity to use data analytics in their tax functions to optimise data for greater insight and efficiencies. We see tax departments increasing their data and digital capabilities with user-friendly software and automation tools allowing compliance to be automated and embedded in the day-to-day business administration.
"Technology can also reduce the time needed to understand and address the complexities of changing legislation, for example, real-time reporting, and managing the challenges that modern businesses face in many areas of tax. Investing in data analytics is a strategic imperative and an immense opportunity having the potential to improve efficiency, create new and better user experiences and products and free up people to get involved in higher value efforts.”
The report highlights the compliance burden for business taxation across three key important measures and shows that Ireland performs very well. For example: time to comply (IRE:82 hours; EU: 161 hours; Global: 237 hours); number of payments (IRE: 9; EU: 12; Global: 24) and time post-filing on corporate tax corrections (Ire: 2 hours; EU: 7.3 hours; Global: 15.1 hours).
However, while Ireland performs very well in terms of these compliance metrics, there are EU countries that are still doing better than Ireland in some regards. For example, total time to comply for Ireland is 82 hours compared to 55 hours for Luxembourg and 63 hours for Switzerland. Similarly, the total number of tax payments for Ireland is 9 compared to 5 for Norway, 6 for Sweden and 8 for the UK. The use of technology and data analytics is key for making efficiencies within the tax function.
The report shows that Irish companies pay a total of 26% of its profits in taxes compared to 39.3% for the EU and 40.3% globally. This is made up of 12.4% in profit taxes, which is very close to our corporate tax rate of 12.5%, 12.2% in labour taxes (which in Ireland this is mostly PRSI) and 1.4% in other taxes (e.g. VRT, etc). Ireland continues to compare very well on labour taxes (12.2%) compared to the average for the EU (25.6%). Ireland is substantially more competitive on the cost of employing people.
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 well over a third of its commercial profit in taxes, spending nearly seven weeks dealing with its tax affairs and making a tax payment every 2 weeks.
Peter Reilly said: “The changing tax environment and geopolitical uncertainties are causing widespread disruption for businesses. For Ireland, one of our biggest concerns is how to manage our international tax reputation. As a country we have been very good at providing an environment where companies can align their intellectual property, employees and profits and demonstrate substance.
"However, we need to be careful to move in line with other countries, not ahead. It appears likely that companies will pay more tax in the future, but where, how and how much is not yet clear. Ireland must continue to work with the OECD to ensure we continue to have a corporate tax system that is fit for purpose and at the forefront of global standards."
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158 countries with over 250,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
© 2019 PwC. All rights reserved
Director, PwC Ireland (Republic of)
Tel: +353 1 792 6644
Corporate Communications, PwC Ireland (Republic of)
Tel: +353 1 792 6547