Parity of corporation tax.

The Chancellor has ordered a full blown investigation into the implications of streamlining corporation tax North/South.

The Northern Ireland Affairs Committee will probe this in the Autumn. The key question raised is the following: What would be the benefits of equalizing the corporation tax rate in Northern Ireland with that of the Republic of Ireland?

George Osborne plans to reduce the main rate of corporation tax in the UK from 28% to 24% over the next four years. The corporation tax rate in the Republic of Ireland is 12.5%.

David Cameron promised to look at Corporation tax when he was here around election time. He is keeping his word. One has to respect that.
Eamonn Mallie

  • jtwo

    So this means that this absolute non-runner will be kicked down the road for, what, maybe another 18 months?

  • Would suspect it would mean a massive move towards incorporation of head office and services from Northern Ireland as 12.5% is a lot of extra tax for a British company. Of course main operations and functions would remain elsewhere with only registered offices left in Belfast or wherever. All the British benefits and a tax subsidy. Of course, it would probably have to be a tax neutral change so a commesurate reduction in block grant based on benefit of low tax environment and reduction in tax going to the treasury.

  • Arthur McAllister

    I think it fails at the third hurdle, Northern Ireland does not have the financial autonomy necessary to be seen as properly autonomous from central government in London
    http://www.law.ed.ac.uk/swisscollaboration/files/scotthandout.doc
    Scotland has tax variance powers, NI does not, it would take more than a few years to jump through the hoops put in place by the Commission.

  • Canny See It Sur

    The thing is that you can look at this negatively all that you want. Yes, there will be big companies who will have a registered office in the north to save on tax bills but you have to look at the bigger picture in terms of companies which don’t already have a base in the UK/Ireland. At the minute, they look at Ireland as the cheapest option when locating industry and IT facilities. If NI has the same tax benefits then it will draw in a lot of outside investment as well as benefit the companies that do operate here already.

    Long term, Cameron may look at this as part of his strategy to breathe new life into the private sector in Northern Ireland.

  • jtwo

    Yes but why should Cameron seek to “breathe new life into the private sector in Northern Ireland” (which remember delivered him no seats and a pain in the arse) at the expense of every other part of the UK?

  • slug

    Tories like low corp tax – and if it works in NI then it would be an argument for GB corp tax to be cut even further.

  • barnshee

    Nobody wants “tax variation” powers -that is mandarin speak for “if you want more money raise it yourself”

    With a rates/water charges time bomb ticking away I can just see marty et al voting in additional taxes. –not

    How would they collect them??. The taxation system is run from London all the money is collected by London -In any event the locals lack the balls not to mention the knowledge to do anyting as adventurous as a Tax change

  • jtwo

    But why would the Tories listen to our special pleading to try it out here? Why not give it a punt in Scotland – which as mentioned already has the legislative framework?

  • bob wilson

    The Chancellor has not ordered an enquiry ‘into the implications of streamlining corporation tax North/South.’

    He has ordered an investigation into the implications of giving the NI Assembly the power to cut Corporation Tax – perhaps to lower than the Republic – provided there is a reduction to the block grant of similar size.

    Eamonn it is pure mischief making to suggest ‘streamlining’
    NI’s competitors are as much Latvia or Estonia as the Republic.

    Time to grow up

  • slug

    NI has a land border with ROI as Cameron stated in his Ballymena Cameron Direct session.

  • John East Belfast

    I have long been of the opinion that this whole campaign was orchestrated by ROI Business with actual/intended northern operations who want to pay one rate of tax throughout the island – just look at the signatories to the highly publicised letter to Varney a couple of years back.

    It broke the heart of INM to pay 28% on CT profits on the Belfast Tele and only get 12.5% ROI relief when they re-patriated them back across the border.

    It was also tied in with the Celtic Tiger discredited and badly regulated Financial Services industry who liked the Belfast labour rates and rent rates and but didnt want to pay UK CT – instead they wanted all that on the cheap to be picked up by the UK tax payer who subsidised UK wide welfare (via taxes including CT) that the ROI decided would be collected via personal income taxes, stamp duty, higher VAT etc and/or which the employee would pay for themselves – thus driving up Labour Rates and Rents.

    Belfast Titanic Quarter was destined to receive a lot of those Financial Services jobs which would be re-located from Dublin and effectively subsidised by UK tax payer.

    However the recession has halted that in its tracks but I am sure it is on the back burner.

    This is not about the NI or UK Economy but about the ROI one and will only serve to de-stabilise UK tax revenues where the UK Govt realises corporates should pay their fair share. CT @ 28% was too high and the move to 24% is in the right direction.
    However considering Corporates pay 12.8% NIC (to be 13.8%) I would move the CT rate lower towards 20% but I would make it contingent on the amount of NIC it pays to ensure that profits are tied into employment.

    Meanwhile in NI as I have said before here we should cut Indirect Taxes and finance it by slashing the Invest NI budget and set up. Indirect Tax cuts would have less impact on the UK Exchequer due to our sea border with GB.

  • Glencoppagagh

    Which companies will benefit most from a lower corporation tax rate? Why those who pay most at present, of course. Think Tesco, Ulster Bank, Northern Bank… More and bigger supermarkets: just what NI needs.
    When the RoI first introduced its lower corporate tax rate, banks and retailers were excluded and it was only under duress from Brussels that they had to accept offering it to them. That might well have stirred the froth on the bubble a bit.

  • Comrade Stalin

    I have long been of the opinion that this whole campaign was orchestrated by ROI Business with actual/intended northern operations

    I’m not clear about what you’re arguing there, John. We should oppose the cut in corporation tax because RoI businesses would benefit from it ? Only a unionist could come up with an argument like that.

    The low corporation tax rate is a key factor – not the only factor, but an important one nonetheless – in the RoI’s economic growth. You can’t really point at them and lecture about bad regulation of the financial services sector given the collapses in the UK and USA.

  • Damian O’Loan

    There is a responsibility for any tax-raising power to respect international efforts to maintain a tax receipt that permits basic society to function, particularly when that tax receipt is a significant factor in the cuts that are about to destabilise both global society and the Union by consequence. So NI should not only be thinking about its own short-term interest. That is at the heart of the conflict with Brussels, so before deciding that to be a technicality to be circumnavigated, some thought should be given to the underlying need.

    Secondly, this is not directly comparable to the situation in the South. There was not such a direct risk there of violence due to wealth redistribution inequalities. It’s worth asking whether you trust the present Stormont administration and Invest NI to use the FDI in a strategic way to benefit all people of NI. If they failed to and there were a rapid income increase in some areas at others’ expense, the consequences could be extremely serious.

    Thirdly, the rate of tax in the South applied to almost all significant multinationals is 10%, so it would be more honest to declare that as the rate of harmonisation. Other countries offering 10% include Albania, Bosnia-Herzegovina, Bulgaria, Cyprus, Montenegro, Serbia, Syria, They are, almost all, former communist bloc or current dictatorships. They provide much worse public services like health and education – motors of growth.

    This has four-party support, so will likely be implemented even at no short-term benefit to NI. There should at least be some consideration of the arguments against.

  • VI Lurgan

    While we all salivate at the prospoct of establishing a tax haven for big business, there are implications for us all. Following link a good article on this.
    Link to article: http://www.guardian.co.uk/commentisfree/2010/may/18/northern-ireland-tax-haven

    Don’t believe Cameron will run on this one anyway. Sop to NI politicans just like sop to LibDems on voting reform. Non-runner in my opinion and I’m happy enuf about that.

  • Emmet Doyle

    Surely the treasury will be considering some sort of tax measure to get around the Azores ruling of the ECJ…

  • John East Belfast

    Comrade

    “We should oppose the cut in corporation tax because RoI businesses would benefit from it ? Only a unionist could come up with an argument like that”.

    But I wasnt arguing that – you said that not me.

    However I was pointing to the origins of the whole matter and the driving forces behind it.
    Once you do that then you start to examine their motives and see if they are consistent with the objectives and priorities of both NI Plc and the wider UK Plc.

    Of course they wouldnt be.

    The ROI has to go it alone so that means it has to contort its tax system with an emphasis on the the individual and letting big business off the hook so that FDI flows in and creates jobs.

    The UK doesnt have to do that – being the 6th largest economy in the world – where business want to be anyway.

    Of course we all want to pay less Tax -not just corporates. However the UK Treasury have to decide on the optimum level of UK wide tax – ie that rate which optomises the UK CT take so that other taxes can be balanced. If that means that certain non SE England regions suffer then that can be sorted with subsidy and more clever ways of thinking.

    A different level of CT in NI will lead to company displacement and the upsetting of the UK overall tax take. Therefore any movement in NI tax rates has to be such that it wont damage the rest of the UK – that will require different thinking.

    The drive from the ROI owned Belfast Telegraph and other ROI businesses with northern interests doesnt give a damn about the NI economy and most certainly not the UK.
    They are acting in their own selfish strategic interests – that is ok of course I wouldnt expect them to act in any other way. I just expect the rest of us to have our eyes wide open

  • Mack

    I would invoke Occam’s Razor here.

    It would be much simpler for an Dublin registered company to leverage transfer pricing to ensure corporation tax is paid in Ireland (Republic) rather than the UK than changing the law in a member state of the British union.

    A couple of examples. Nestle transfered the ownership of brands held by an Australian firm they purchased from Oz to Switzerland. They then charged the Aussie firm royalties for using the brand. In effect the brands become a cost for the Aussi subsiduary and would-be Aussie profits are transfered to lower-tax Switzerland.

    There are probably endless techniques that could be used by the imaginative (I’m not a tax lawyer so I don’t actually know what is allowable and what isn’t) e.g. The Belfast Telegraph website seems relatively similar to the Irish Independent’s website. IMN in Dublin might be able to charge the Bel Tel a hefty licence fee for any technology, designs, brands, patents (etc) used – if they wished to transfer profits southwards.

  • aquifer

    Lowering the corporation tax rate makes sense. Let companies grow faster and use more foreign money to expand our tiny private sector economy and create jobs for people who will repay the tax as income tax and VAT.

    But SFDUP like to pretend they have taken over the big house and can give all the their co-worshipping peasants a job so they will never reduce public sector employment enough to let it happen.

  • Comrade Stalin

    John,

    Once you do that then you start to examine their motives and see if they are consistent with the objectives and priorities of both NI Plc and the wider UK Plc.

    That language still sounds consistent with trying to find a political motive where there isn’t one, John.

    I don’t think that corporation tax parity is especially likely, or that it would necessarily be especially effective in driving economic growth here. But I don’t think the motives behind it are especially political; they’re coming from people who want to pay less tax, and why wouldn’t they ?

    And of course you’re not going to hear people outside NI or the RoI arguing in favour of a special corporation tax reduction here. Nobody in the UK will support setting up a tax haven for people they largely see as being part of a different country.

  • John East Belfast

    Comrade

    “That language still sounds consistent with trying to find a political motive where there isn’t one, John.”

    In my first post I made it clear that the object of ROI business with Ireland wide interests was to pay one low rate of tax on the island – I never brought politics into it you did.

    ” But I don’t think the motives behind it are especially political; they’re coming from people who want to pay less tax, and why wouldn’t they ?”

    Yes exactly what I said in my second post.

    I am looking at this from a UK wide perspective and what is in the best interests of the UK as a whole

  • Mack

    JEB

    “In my first post I made it clear that the object of ROI business with Ireland wide interests was to pay one low rate of tax on the island”

    I don’t think this stands up. Companies with operations in both north and south can pay one low rate of tax on profits by ensuring that profits are only booked in the south. They actually have an advantage over Northern Ireland only companies in that respect.

    I would imagine that every company booking profits in the north would have an incentive to see tax rates lowered.

    So why would Ireland-wide companies shout more loudly for this, over northern only companies? Especially seeing as the lower corporation tax in the south, on the face of it, would appear to be a comparative advantage for them?

    I just don’t see there being a big added incentive for southern firms to pursue that, over and above those that exist for northern firms, other than perhaps some form of altruism..

  • michael drake

    Isn’t it funny. everyone appears to be wanting to streamline
    corporation tax in Northern Ireland at the moment.

    Do they not recall former MLA Malachi Curran making a strong proposal regarding this in the Assembly several years ago.

    The response at the time. Nothing. of course the suggestion was coming from an old-tyme Socialist like myself.

    So what is new.

    Michael Drake.

  • John East Belfast

    Mack

    It isnt as easy as you think to just “book profits” in whatever jurisdiction you wish regardless of where they were earned. There is stringent Transfer Pricing legislation in place to tackle it.

    “So why would Ireland-wide companies shout more loudly for this, over northern only companies? ”

    Because Northern companies just see it as something that gets decided in Westminster and which like every other UK company they stoically have to accept.
    However an ROI based company is already enjoying 12.5% and hence the motivation is different.

    Basically at the height of the Celtic Tiger Labour Rates and Rents were considerably lower in Belfast than Dublin and the ROI Financial Services industry in particular wanted to have its cake and eat it and transfer considerable operations to Belfast – it just didnt want to pay UK corporation tax though.

    Basically they wanted UK standards of welfare and education paid for with an ROI fiscal regime where they got all the good bits (5% Stamp Duty, lower personal income tax) and all the bad bits (like 28% CT) were set aside for them.

    Of course NI would have a price to pay by giving up an equivalent part of its block grant and the UK Exchequer apple cart would be substantially upset as the call moved to other regions as well as UK companies moving to NI.
    Of course this would solve NI employment problems but at what cost to the optimum level of UK tax receipts.

  • EWI

    Bingo – slug has it exactly right. It’s a trojan horse for Tory tax-cuts for rich corporations and individuals.

  • Mack

    JEB –

    The office in which I work is effectively a cost centre for a US multi-national. The company doesn’t book any revenues in Ireland, but can deduct the wages costs of the Dublin office from it’s US tax bill. The company operates here because labour costs are lower than in the US.

    It is very simple for companies to set up non-revenue generating back offices to take advantage of lower labour costs and rents elsewhere. The only advantage of a lower corporation tax for the Multinationals operating in the IFSC in coming north, many of whom (all??) already have British operations, would be if the intend generating and book profits in the north. Probably also worth considering that as NI would have a different corporation tax regime to the rest of the UK those self-same transfer pricing regulations would apply to profits earned in Britian (i.e. there would be no logistical / legal / tax difference in transfering profits to Belfast or Dublin). The Northern Irish market is _tiny_.

    Also worth considering on the difficulty of transfer pricing – that it accounts for between 15 and 20% of the Irish economy!

  • Mack

    Also bear in mind raw labour costs are only part of the story, what matters is productivity (output per Euro). Wages are higher in Dublin, but productivity is undoubtedly higher also.

  • Mack

    Here is an alternative.

    The Multinational corporations operating in Ireland are very fond of the Irish Corporation tax regime, but there are active threats to it. Particularly within the EU from the French. There are also occasional noises from the US – especially when unemployment and the trade deficit widens.

    Having the same regime in both parts of Ireland, would allow the MNCs to hedge their bets. It would also ensure that the UK, a large and more influential country & US military ally, throws it’s weight behind defending the current arrangements in Europe and in the US.

  • John East Belfast

    Mack

    “The office in which I work is effectively a cost centre for a US multi-national. The company doesn’t book any revenues in Ireland, but can deduct the wages costs of the Dublin office from it’s US tax bill. The company operates here because labour costs are lower than in the US”.

    That is a good point and blows the FDI argument for lower CT out of the water.
    There is no reason why NI could not be viewed as a lower cost centre for back office operations at least.

    However the pressure for lower CT is not coming from US multi nationals – it is coming from the likes of the Irish Banks and INM and those ROI registered companies who were riding the Celtic Tiger.

    There is regular pressure from US Treasury that world wide US company Profits will be taxed at US rates whether they are remitted back to US or not and they see it as a way of plugging their deficit – whther the UK is opposing that or not will not make any difference to the Whitehouse.

    Productivity is a very difficult thing to measure