Depending on what analyst you speak to, the ongoing decline in technology stocks is either a temporary market recalibration, a fundamental restructure – or something in between. Regardless, the numbers are both striking and real. Microsoft is down almost 28 per cent since its November 2021 high. Alphabet has slipped by the same percentage since its February 2022 and Apple has lost a quarter of its share value since January.

And it is not just the top-tier behemoths suffering. More than 300 staff at PayPal face compulsory redundancy in Ireland, while a string of other global tech unicorns such as Klarna are cutting costs and staff numbers across Europe. Snap’s shares plummeted $9.68, or 43 per cent, to finish at $12.79 on Tuesday as investors digested its comments that the macroeconomic environment has deteriorated more than anticipated.

I could go on but you get the point: Companies that had previously been impervious to wider macroeconomic concerns are now losing investor confidence in the face of multiple shocks. “What’s changed in the last few weeks is that the range of concerns has broadened so dramatically,” Eric Leve, chief investment officer at investment-management firm Bailard said last week. “It was inflation that was front and centre for everyone for so long. Now, it’s far beyond that.”

The ongoing tech rout raises significant long-term questions for Irish policymakers too, given the huge amount of corporation tax paid by a very small number of multinationals. The government and the Central Bank have long been aware of the concentration risk but, with big tech and big pharma experiencing stellar growth, it was easy to overlook.

So, just how big an issue is the concentration risk around corporation tax to the Irish economy? What sectors are more exposed than others? And how has the composition of corporation tax changed over the last number of years?

To try and answer these questions, I have prepared eight separate graphs. They are based on data compiled by the Revenue Commissioners, and they give a sense of just how exposed Ireland is to a fall in the performance of a small number of companies.

This rise in corporation tax has been stunning. Last year, it peaked at €15.3 billion, some 22.6 per cent of total tax receipts in that year. This is up 41 per cent on figures for 2019. Thomas has written at length about the reasons for the surge, including the impact of the OECD’s Beps process and the onshoring of intellectual property in Ireland.

As corporation tax receipts have increased, so too has its importance to overall Exchequer receipts. In 1984, corporation tax accounted for less than 5 per cent of the overall tax base. It rose to 16 per cent in 2002 before falling back over the following years. In the past two years, it has been 20 per cent and 22 per cent respectively.

This chart gives a sense of where corporation tax came from in 2021. The overwhelming majority of the tax came, slightly more than 80 per cent, came from foreign-owned multinationals. Just €1.3 billion came from what Revenue classifies as Irish-owned multinationals. This label is slightly misleading. Yes, it includes indigenous Irish companies with multinational operations, but most of the companies under this heading are foreign companies that domiciled their headquarters in Ireland like Accenture. Non-multinationals accounted for the remaining €1.6 billion. These are rank and file companies across the country that pay corporation tax on their profits.

Interestingly, Revenue also gives a breakdown of the effective tax rate that the various groups pay. Obviously, the headline rate is 12.5 per cent, but we know companies can reduce this using capital allowances and research and development credits. Foreign-owned multinationals paid an average rate of 11.2 per cent, while Irish-owned multinationals actually had an effective tax rate of 6.7 per cent. There are a number of reason for his discrepancy, and it is something I will return to in the coming days as it is worthy of further investigation. Non-multinationals paid an effective rate of 9.7 per cent. What is striking about the numbers is that the larger corporates, the top 10 and the top 100 corporation taxpayers paid a higher effective rate of corporation tax.

And there is where the concentration risk creeps in. Revenue’s Large Corporates Division (“LCD”) has responsibility for managing the tax affairs of the largest taxpayers. According to Revenue, net corporation tax receipts from LCD companies in 2021 increased by €2.6 billion (25 per cent) to €12.9 billion. These accounted for 84 per cent of net receipts. Net receipts from non-LCD companies increased by €885 million compared with 2020, a faster growth of 59 per cent. This is a positive endorsement of the non-multinational economy, particularly in the teeth of a pandemic. However, it is worth noting that the net receipts from the 10 largest payers in 2021 totalled €8.1 billion. And this number has been increasing in recent years.

As this graph shows, the importance of just 10 companies to the Exchequer has grown significantly in recent years. In 2010, the top 10 companies contributed 32 per cent of the entire corporation tax take. By last year, the number stood at 53 per cent.

Overall, 155 companies paid €11.6 billion of the total corporation tax receipts of €15.3 billion Meanwhile, 55,267 smaller companies paid a combined €414 million, according to Revenue data.

The composition of that top 10 list has changed, as this heat map shows. For example, the top ten from the 2021 lot paid just €2.5 billion back in 2001. Essentially, the companies in the top 10 list ebb and flow, but their importance has continued to grow.

It is worth delving further into the figures to see what sectors pay the most tax. Last year, manufacturing companies paid €4.4 billion in corporation tax, up €1.5 billion on the previous year. Again, the title is slightly misleading as most of the activity is not old-school manufacturing. Instead, €2.8 billion of that related to chemical and pharma manufacturing and €933 million related to profits from the manufacture of ICT products. The non-manufacturing tech sector paid €3.2 billion, while financial services came third on the list with tax payments of €2.4 billion.

The Revenue view

In a recent interview with The Currency, Niall Cody, the chairman of the Revenue Commissioners, addressed the issue of the concentration risk around corporation tax. “I hesitate to use the word concern, because I would be far more concerned if it was not coming in,” he said.

“But a more surprising thing in this year’s report is the growth in corporation tax of the SME sector. I think it is up 80 per cent year-on-year. it relates mostly to a year in which we had five months of the harshest lockdown ever. That is a really broad-based recovery and a really positive recovery. And you also see it in the live register. There are concerns, and there are concerns about the future and the impact of international tax developments, but it is a really positive overall result.”

Essentially, when you break it all down, the data is clear: The Irish economy is more reliant than ever on a handful of very large companies. The government has spoken a lot about the impact of global corporation tax reform and has gamed out the consequences any changes would have upon the tax take. However, as the wider tech sector struggles, it is important that we measure the concentration risk also.

Niall Cody is right – it is better to get the tax than not to get it. But it is equally important to understand the fundamental risks associated with such a profound concentration of corporate taxpayers.  

Further reading

Cloud-high: How Microsoft grew to pay one sixth of Ireland’s corporation tax