RICHARD CURRAN

What happened to the €18bn corporation tax windfall,

FOUR years ago, corporation tax receipts began to rise significantly. At the time, questions were asked about whether this was due to the one-off profit-shifting behaviour of just a couple of very large multinationals. The big question was whether these higher receipts were really sustainable.

The State had taken in €4.6bn in corporation tax in 2014, but this had jumped to €6.9bn in 2015.

Then finance minister Michael Noonan assured everyone the tax surge was sustainable. Many didn’t believe him, so he quoted the Revenue Commissioners, who appeared to back him up.

Noonan said the Revenue told his department the increase in corporation tax was very broadly based, came from a number of sources and was seen across all sectors.

Central Bank governor Philip Lane wasn’t buying it. He wrote to the minister, warning him about the unsustainability of these corporate tax surges.

Four years later and the tax take hit €10.4bn in 2018, and is on track to go closer to €11bn this year. But the mood music has changed. There is to be another review of the corporation tax take. Further changes to our corporate tax approach were announced in the Budget by Finance Minister Paschal Donohoe, pictured, and the OECD has come up with some serious new proposals.

Given that last year, around €1 in every €5 collected in tax came through corporation tax, it all starts to look a bit shaky.

About 77pc of that corporation tax came from foreign multinationals, with just 10 companies contributing half of that pot.

We have built an Exchequer model on 10 foreign companies paying around €7.80 of every €100 collected in tax by the State.

What was the Government to do? Not take the money? It had two choices. One was to reform its tax laws more quickly because they have damaged the country’s reputation.

The other was to identify this money as a temporary windfall and ringfence it in the likes of a rainy day fund.

The Government did set up such a fund but just when it was due to put the first €500m into it, the rain has started falling.

Instead, it is putting €1.5bn from the Irish Strategic Investment Fund (ISIF) into it.

This money was originally intended to cover future public sector pension requirements — a sort of pensions rainy day fund. It also paid part of the bank bailout.

So, the Government is moving money from one rainy day fund into another rainy day fund. Ministers are now talking about broadening the tax base in order to insulate the Exchequer finances from any shock that might arise from a dramatic fall-off in corporation tax receipts.

One worst-case scenario would point to a €6bn hole in the public finances from a sudden shock in corporation tax receipts. Other reports suggest the latest OECD proposals could dent the figure by around €1bn. Broadening the tax base is another way of saying that other people need to plug the gap. Carbon taxes, sugar taxes and whatever else would point to consumers directly paying more tax to fill any future hole in the Exchequer wallet.

This money would be required to keep meeting the current expenditure increases agreed by the Government over the past four years. Surely there was a more balanced approach?

The Government could have curtailed current expenditure increases and ringfenced the temporary corporate tax receipts. If €5bn is our more sustainable corporation tax receipt base, then the State is on track to rake in a cumulative €18bn above that from 2015 and 2019. Time to ask: where did the money go?

Nothing half-baked about remuneration at Aryzta

KEVIN Toland and Gary McGann took on tough jobs at Aryzta when they became chief executive and chairman. The company was in something akin to freefall. But they have certainly been paid well for their efforts.

The two oversaw a massive €790m fundraising last year, which aimed to strengthen the balance sheet, provide time while a three-year cost-cutting plan was implemented, and help turn things around.

Older shareholders got pretty much wiped when the stock was priced at €0.88 per share.

It is now trading at €0.65 per share and the company’s market capitalisation has sunk to €651m, despite raising €790m less than a year ago. The company’s annual report, out this week, showed that Toland received a total remuneration package of €4.1m in 2018.

Much of it was part of a long-term incentive plan but he nevertheless received a salary of €880,000, a pension contribution of €175,000 and a performance and contractual-related bonus and retention payment of €860,000.

McGann received €295,000, which included stock of €118,000.

Non-executives on the board were also pretty well-remunerated for their time. Aryzta had five non-executive directors receive over CHF100,000, which is €91,000.

The highest paid was Jim Leighton, who also had a six-month consultancy contract with the company, which saw his total remuneration reach €207,000.

During the week, Aryzta announced a deal to finally offload most of its stake in French frozen foods group Picard. This one had been hanging around in the bottom of the freezer for far too long.

Having bought a 49pc stake in the business, under the old management team, in 2015 for €447m, it sold 43pc of Picard for €156m to a French firm, Invest Group Zouari.

Adding in special dividends that it received over the year, the total amount recovered by Aryzta from its Picard punt amounts to €247m. Aryzta’s remaining 4.5pc holding is worth €16.3m. It is still close to a €200m loss.

Aryzta has been very much a forced seller and it has taken time to land even this price from a buyer.

So perhaps the most surprising part of the annual report is the remuneration for former chief executive Owen Killian in 2018.

Having left as chief executive in 2017, he still earned €780,000 in salary in 2018, along with a pension, BIK earnings and a contractual bonus payment, bringing his total remuneration to €1.36m.

No doubt this was all part of his agreed package when he resigned the previous year.

Aryzta says it has stabilised its performance and believes it is improving in the US market, which has been a source of huge problems.

Nevertheless, new investors who jumped in at the fundraising are still down 30pc in less than a year.

Vernon gets timing right again

TIMING is very important in business. When it comes to property, few have better timing than Stephen Vernon of Green Reit, who is of course getting out.

With so many risks on the horizon, no wonder Vernon felt it was time to shut up shop, and exit Green Reit, which has just been sold to Henderson Park for €1.34bn.

Whatever about reading the commercial property market and where it sits right now in the cycle, Vernon and Green Reit shareholders also got lucky on the timing of Paschal Donohoe’s Budget.

This week, the Finance Minister announced a number of crackdowns around how Reits are taken over, from the amount of tax they have to pay in capital gains tax to a 1pc stamp duty.

Green shareholders gave overwhelming backing to the takeover deal in the same week that the Budget placed new restrictions on Reits.

If the Green deal were being done this week, after the Budget, surely Henderson Park would not have been willing to pay quite as much money?

Sometimes timing is about skill and sometimes it is just blind luck.