26/11/21

IRELAND: Windfall tax on multinationals’ ‘excess profits’ could net exchequer €4bn, report says.

As published on irishtimes.com, Friday 26 November, 2021.

A windfall tax on “excess profits” generated by multinationals during the pandemic could net the Irish exchequer up to €4 billion depending on the rate, according to a report commissioned by The Left group in the European Parliament.

The study estimated the potential tax revenue gains for EU member states from a tax on the excess profits,which it defined as profits over and above the trend-adjusted average during the preceding 2014-2019 period.

It calculated that multinational corporations with subsidiaries in Europe made excess profits of €364 billion in 2020, which accounted for 41.7 per cent of their total profits that year.

Multinational subsidiaries in Germany and France generated the largest amount, equivalent to €10 billion for each country, while Irish-based multinationals generated the third largest amount, €4.9 billion.

The report estimated that Ireland could raise €600 million by imposing a once-off excess profits tax of 10 per cent on these earnings; €1.8 billion from a 30 per cent tax; €3 billion from a 50 per cent tax; and €4.3 billion from a 70 per cent tax.

The study used data from 8,292 multinationals with at least one subsidiary in the EU, 1,763 of which were deemed to have generated excess profits last year.

It said the vast majority of these profits were made by corporations in three sectors: manufacturing (41 per cent), information (21 per cent), and financial (16 per cent).

“To finance countries’ economic recovery from the pandemic, politicians and experts have revived the idea of an excess profits tax: an additional tax levied by governments on corporations’ excess profits,” the report said.

“While an excess profits tax in response to Covid-19 would be the first known use of such a tax in response to a pandemic, excess profits tax has a history of being used in special circumstances, most prominently during the wars of the 20th century,” it said, noting France, the UK and the US used them to fund war efforts.

After initially staying out of the agreement, the Republic last month signed up to the Organisation for Economic Co-operation and Development-brokered (OECD) deal on corporate tax, which will ensure big companies pay a minimum tax rate of 15 per cent, a move than effectively ends the 12.5 per cent rate prized by successive Irish governments.

Nonetheless, the Government is on course for another record tax haul this year as a result of several large, unscheduled corporation tax payments from multinationals in the life sciences sector, with full-year corporate tax receipts expected to be close to a record €14 billion.

French MEP and co-chair of The Left group Manon Aubry said: “In moments of crisis, policy has to adjust fast to reality. This study shows how excess profit taxes were used several times in European and world history and, more importantly, give us concrete values of how it would be to levy such a tax on multinationals with subsidiaries in European countries. This allows us to relaunch this crucial debate now,” she said.

“We defend that this kind of exceptional abnormal, profits, when the rest of the economy is in a downturn, should be taxed,” she added.