Ireland’s low labour taxes are a key differentiator for inward investment

But is this a sustainable tactic to attract business?

This annual PWC/World Bank “Paying Taxes” Report has been released, it compares the levels of various tax categories faced by businesses by taking a case study medium-sized company and comparing it on a like for like basis across 189 countries worldwide.

The outcome shows that businesses based here pay an average of 12.4% in tax on profits – very close to the headline 12.5% corporation tax rate, but significantly just 12.1% in taxes on labour, mainly through PRSI charges.

This low tax on labour may be storing up problems for the future in terms of funding pension liabilities, it also serves as a strong attraction for foreign companies based here.

Joe Tynan, Head of Tax at PWC Ireland spoke to Business Breakfast, he says taxes on labour are becoming more significant as pressure grows for more transparency in relation to the taxes paid by multinational firms:

"We've all heard about the OECD report and the BEPs report, they've all had a focus on ensuring that profits are earned where people are and that profits are earned where sales are. This report is saying that overall it is cheaper to employ people, in terms of the employment tax that you pay, in Ireland than elsewhere."

He adds that Ireland has kept its tax system simple and that research from the World Bank shows that companies are more likely to comply with taxes where it is easy to pay.

While low taxes run the risk of adding to the country's looming pension crisis, Mr Tynan concludes that when it comes to taxes and attracting business, "We have a good advantage and we should look to hang on to it."