In its annual report, ESB Finance DAC, a specially created subsidiary of ESB that is used to raise finance for the group on the bond markets, said the new rules may mean its state-controlled owner ends up paying extra tax.
“Under the legislation, the company’s ultimate parent Electricity Supply Board (ESB) may be required to pay, in Ireland, top-up tax on profits of its Irish subsidiaries and share of profits in joint ventures and associates that are taxed at an effective tax rate of less than 15pc. The company is continuing to assess the impact of the Pillar Two income taxes legislation on its future financial performance,” it said.
The Irish Government enacted the so-called Pillar Two income taxes legislation at the start of this year. Under the new rules any large company, with annual turnover greater than €750m, must pay a global minimum tax rate of 15pc. The rules were designed to stop companies shifting profits across borders to minimise their tax bills. But in the case of Ireland, it will mean some domestic enterprises will pay more than the national corporation tax rate of 12.5pc.
ESB Finance DAC’s accounts show it borrowed €1.35bn for its parent company on the bond markets last year in a series of deals. The total outstanding principal of borrowings was €5.97bn at the end of 2023.
The subsidiary’s financial results show it generated a profit before tax of €796m last year and resulting notional tax charge of €199m, based on a tax rate of 25pc for so-called Section 110 companies, a common vehicle for managing large-scale financial assets.
The accounts indicate that the notional tax charge was deferred, leaving an effective tax rate of zero in the subsidiary. If that happens this year, under the new rules, that’s likely to mean a top-up tax payment has to be made, although it would in turn be offset against the parent group’s own finances.
Financial results issued earlier this year for the wider ESB Group showed profits after tax there jump by 33.7pc to €868m in 2023.
Operating profit rose to €1.1bn in the same period, up €274m from 2022.
ESB is recommending a dividend of €220m, bringing dividends to over €1.4bn over the past four years. In January of this year, ESB also paid €76m to the Government under its scheme to cap market revenues of electricity generators from December 2022 to June 2023.
The energy company said this increase was driven by its regulated networks business, as well its operations in Great Britain, which accounted for 23pc of profits
The group’s generating and trading business recorded an operating profit of €730m in 2023.
Operating profit in the ESB Networks division increased €152m to €359m due to higher regulated income.
ESB said its customer solutions division recorded an operating loss of €12m in 2023, an improvement from a loss of €109m a year earlier.
Electric Ireland’s profitability was lower as a result of price reductions.
The group’s generation and supply businesses are required to operate separately. As a result, profits from the generation business cannot be used to lower prices for Electric Ireland customers.
