UHY Study: European economies face tax burden nearly twice as high as major emerging economies

UHY Study: European economies face tax burden nearly twice as high as major emerging economies

April 11, 2018

UHY Study

European economies face tax burden nearly twice as high as major emerging economies

  • Other Western economies could be inhibiting growth with higher relative tax takes


The Republic of Ireland has a tax burden of 26% of Gross Domestic Product (GDP), over a third (39%) lower than the average rate for European economies (43.3%), shows research by UHY, the international accounting and consultancy network.

Ireland’s government’s tax take is also lower than the global average (28.2%) in the study – the only Eurozone country studied to be lower.

Ireland was ranked 19th in the study. UHY studied 34 countries around the world, calculating what percentage of that country’s GDP is taken by the Government in tax (see chart below).

UHY says that the Republic of Ireland offers many companies major tax incentives to base themselves in Ireland in addition to the 12.5% standard corporation tax rate. For instance, the Government offers a tax credit of 25% of qualifying expenditure spent on Research and Development that can be offset against a company’s corporation tax liability.

Generally, European economies dominated the top of UHY’s table of the highest taxes. European countries, on average, have a tax burden of 43.3%: over 50 percent higher than the global average (28.2%) in the study. Denmark came top of the study with the Government’s tax take representing 53.5% of total GDP.

Emerging economies in general have seen much lower levels of Government tax ‘take’, including many in the ASEAN (Association of Southeast Asian Nations) trading bloc such as Malaysia (16.5%) and the Philippines (13.9%).

Alan Farrelly of UHY member firm UHY Farrelly Dawe White in the Republic of Ireland, comments: “Lower personal and business taxes can help the Irish economy spur growth and create incentives, particularly for investors and larger, more globally-focused businesses.”

“Along with tax incentives and a lower overall burden of taxation, the Irish Government offers many companies other inducements to invest in the country. For example, the Government can even give financial assistance – administered either by Enterprise Ireland or Shannon Development.”

“The availability and level of Government assistance is largely dictated by where the company is based to increase economic activity across all areas of the country, but particularly in the midlands and western regions of Ireland.”

“However, in recent years the European Commission has been applying increasing pressure on the Irish government over its comparatively lower tax rates and wants it to reduce the amount of tax benefits given to foreign-based companies. Businesses will largely want the government to resist that pressure.”

“For more developed economies it can often be harder to balance an ageing population with trying to reduce the tax rate, but Ireland is currently leading the way.”

Levels of tax take by national Governments are of growing interest, particularly for the EU at the moment with Brexit on the horizon, to secure Government funding in the short term and encourage growth in the long-term.

Recently, the European Commission suggested that EU countries may have to consider changing tax policies to help fill the €15 billion annual budget hole left by the UK’s Brexit. These could include proposals such as using a portion of corporate tax receipts from national treasuries for the EU’s common funds and programmes.




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