Exchequer Returns

Exchequer returns June 2020 – Peter Vale commentary

Peter Vale Peter Vale

Corporation tax and income tax were the key areas of focus in the latest Exchequer figures.

Once again, the dip in income tax receipts was more modest than expected, although down 21% down on the June 2019 equivalent.  The smaller drop than expected would appear to reflect the fact that lower paid workers have suffered most as a result of COVID, so that the impact on tax receipts has been less than anticipated, with tax payments from higher earners propping up receipts.

As the economy starts to reopen, it now looks like the overall drop in income tax receipts for 2020 will be less than expected, with figures at this point almost identical to the 2019 equivalent, although almost certainly there will be a drop in the aggregate figure by year end. 

Next month will tell us if we can expect the same on the VAT front.  However it’s worth noting that VAT figures for the year to date have been hit hard and currently sit 20% off the 2019 equivalent, with worse likely ahead.

Once again we saw very robust corporation tax receipts.  The June receipts were slightly ahead of June 2019 and follow on from a very strong showing in May. 

The key point regarding the latest corporation tax receipts is that for the most part they reflect early tax payments for full year 2020 expected results.  This would indicate a much higher level of expected profitability, and related tax receipts, than the Department had expected, with the June returns almost €1bn ahead of the Department’s revised COVID19 estimate.

On the basis of the strong June corporation tax figures, it is not unreasonable to expect equally strong corporation tax figures for the rest of the year.  So once again it looks like there will be a large surplus of corporation tax receipts in 2020 to at least partly shelter the expected deficits in income tax, VAT and excise receipts, something that was not expected at the start of the crisis.

Driving the strong corporation tax receipts is unquestionably the contribution of large multinational firms based here.  The profits of many of these MNCs will have been increased by the migration of valuable Intellectual Property to Ireland in recent years as companies moved to transfer their IP “onshore” and away from tax havens. 

An interesting recent development was the withdrawal by the US from the OECD digital tax negotiations.  This puts the ball back into the EU’s court, which is not necessarily good from Ireland’s perspective.  The upcoming US election could be key for Ireland, with the possibility of the US re-engaging in the OECD process depending on the outcome.  OECD initiatives to date in the global tax space have benefited Ireland whereas EU initiatives have tended to represent significantly more threat to Ireland’s tax offering.

Overall at the end of June, tax figures for the half year are marginally ahead of the first six months of 2019.  This is a remarkable achievement given the COVID19 backdrop and largely driven by large corporation tax surpluses and a strong start to the year across all taxes.  It also reflects more resilient than expected income tax receipts.

At this point there is good reason for optimism that full year tax receipts will be considerably ahead of the Department’s revised COVID forecasts.