| | | | | | | | | | | | Ireland is the easiest country in Europe to pay business taxes | | | | | Ireland is the easiest country in Europe to pay business taxes for the fourth year running and the seventh easiest country in the world. This is according to a new report issued by PwC, the World Bank and IFC entitled “Paying Taxes 2011 - The global picture”. The report covers 183 countries worldwide and looks at all taxes paid by businesses, using broad principles from PwC’s Total Tax Contribution Framework.
The ranking by PwC/The World Bank 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 2011 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.
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 time it takes to comply (Ireland ranked 2nd in Europe with 76 hours);
The cost of taxes, which is measured by the total tax rate (Ireland ranked 3rd in Europe with 26.5%). The range of total tax rate for Europe varied from the lowest of 21.1% for Luxembourg to the highest of 68.6% for Italy. The total tax rate covers five types of taxes that organisations pay: profit, social security, property, turnover, and other taxes such as fuel taxes etc;
The number of tax payments made.
Speaking about the Irish results, Feargal O’Rourke, Head of Tax, PwC Ireland said:
“It is very good news for Ireland particularly given the ongoing economic and financial uncertainty. As the easiest place in Europe and seventh easiest place in the world to deal with business taxes, Ireland is clearly in a leadership position in this area when attracting Foreign Direct Investment. The survey demonstrates that, having simpler tax systems with competitive business tax rates, gives Ireland a real advantage in the market for attracting direct investment.
One of the reasons why Ireland leads in Europe as the easiest country in which to deal with taxes is due to the Revenue continuing to make substantial advances in the area of electronic filing and payments and taking a proactive approach to making it ‘easier’ for companies to deal with their obligations.
Our 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 is an even more important element in providing us with an opportunity to help multinational corporations establish operations in Ireland”.
According to the study, a typical Irish company spends just over a quarter of its commercial profit in taxes, spends two weeks dealing with its tax affairs and makes a tax payment nearly every six weeks. Globally this compares to the typical company paying nearly half of its commercial profit in taxes, spending seven weeks dealing with its tax affairs and making a tax payment every 12 days.
The overall rankings for the EU on ease of paying taxes are, in order: Ireland, Denmark, Luxembourg, UK, Netherlands, Estonia, Cyprus, Sweden, Lithuania, France, Latvia, Finland, Belgium, Spain, Portugal, Greece, Slovenia, Bulgaria, Germany, Austria, Hungary, Poland, Slovak Republic, Czech Republic, Italy, Romania.
The top 10 worldwide economies for ease of paying taxes are, in order: Maldives, Qatar, Hong Kong, Singapore, United Arab Emirates, Saudi Arabia, Ireland, Oman, Kuwait, Canada.
In the UK
- Total Tax Rate for our case study company in UK has risen from 35.8% in 2006 to 37.3% today;
- Although UKs statutory rate for corporation tax has fallen, other changes to the tax system have resulted in this increase; and
- UK ranking has slipped from number 11 for ease of paying taxes in 2006 to number 16 today...still a high ranking, but another message from the report is that a competitive tax system needs constant attention and adjustment.
Global Highlights:
Overall, the study shows that paying taxes is easiest for business in high-income economies that have the lowest tax cost and the lowest administrative burden. These economies tend to have more mature tax systems, a lighter administrative touch, and greater use of the electronic interface with tax authorities.
Nearly 60% of the world’s economies have made significant business regulatory changes to ease paying taxes, despite the impact of the downturn and the sluggish global recovery.
Globally, 40 economies have made it easier to pay taxes, with Tunisia improving the most.
Globally, the time needed to comply has declined by a week. The tax cost has fallen on average by 5% and the number of payments has dropped by almost four. In all, 90 economies have reduced taxes on corporate profits since 2006.
- China has taken a great leap forward in reforming its tax system since 2006. It has cut the taxes needed to be paid by our case study company from 35 to 7, the hours needed to comply from 872 to 398 and reduced the Total Tax Rate from 80% to 63.5%;
- Indian and Brazilian tax systems have moved less quickly, with our Brazilian case study company spend and massive 2,600 hours to comply due to confusing laws and onerous rules issued by the federal, state and municipal tax authorities;
- Netherlands has taken its number of hours to comply and number of taxes down dramatically. Total Tax Rate as also fallen from 48.5% to 40.5% since 2006;
- Canada has been reducing the tax burden to stimulate growth and restore confidence. Total Tax Rate there has fallen from 49.1 to 29.2%;
- A strong theme in the report is how paying taxes is easiest for businesses in high-income economies; and
- Tax rules in some developing nations prevent certain types of economic activity or 'force' it into the informal economy.
About the World Bank Group
The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. It comprises five closely associated institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID). Each institution plays a distinct role in the mission to fight poverty and improve living standards for people in the developing world.
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