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Corporation Tax Rate vs effective corpoation tax rate

  • 21-11-2010 3:13pm
    #1
    Registered Users, Registered Users 2 Posts: 523 ✭✭✭


    Could someone tell me what the difference is because I keep hearing about it a lot lately, especially in relation to google? What is our effective corporation tax rate?


Comments

  • Registered Users, Registered Users 2 Posts: 407 ✭✭daddydick


    The corporation tax is a flat 12.5% on profits (say a company making a profit of €1,000,000 will have corporation tax of €125,000).

    Whereas the effective corporation tax takes into account any losses from prior periods etc that a company can use to offset the tax charge for the current year. So, say the company makes a loss of €100,000 in the prior period. They obviously do not pay any tax on this and can use it against profits in future periods. So, they are taxed on €900,000 (€1,000,000 less €100,000 loss from prior period carried forward). Therefore the tax payable is €112,500. This gives an effective tax rate of 11.25%.

    Obviously a lot of other exemptions and types of losses etc come into play which mean that pretty much no company is paying tax of 12.5% on their actual profits in each period. Hence why companies spent thousands for tax advice both in-house and external in order to bring their effective tax rate as low as possible.

    Hope this answers your question.


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