Accountants back NI corporation tax cut

It seems that Ireland’s accountants have not been deterred by reports that Sir David Varney is opposed to a corporation tax cut for the North.

Tax advisors on both sides of the border have
rejected suggestions that bringing Northern Ireland’s corporation tax
rate in line with the Republic’s would lead to widescale tax avoidance
by British companies.

Accountants have challenged ‘‘technical
arguments’’ against lowering the North’s tax rate in a letter to David
Varney, who is undertaking a review of future tax policy in the North
on behalf of new British prime minister Gordon Brown. (Sunday Business Post)

The full submission is available on the ICAI website, and a very impressive document it is:

Currently there is much international goodwill towards Northern Ireland, particularly in the United States, the European Union and the Republic of Ireland. The Republic of Ireland is at present the fourth largest investor in the UK economy. This goodwill can be transformed into Foreign Direct Investment if we can transfer the economy from one heavily dependent on the public sector to one driven by investment and entrepreneurship – an economy characterised by self sufficiency rather than subsidy. However the goodwill will not last forever; we have perhaps an 18 month window of opportunity to capitalise on it.

While in the recent past, the Northern Ireland and the Republic of Ireland economies have had many similarities, a fundamental difference has been the lower corporation tax rate for trading companies in the Republic of Ireland of 12.5%. It is recognised that the low corporation tax rate has been one of the central reasons that the Republic of Ireland has been very successful in attracting Foreign Direct Investment (FDI) to the island and achieving a significant improvement in economic performance relative to its island neighbour. (ICAI Varney letter)

Some of the arguments in the letter willl be music to the ears of Alex Salmond as much as to the Stormont Executive:

there are two situations where a Northern Ireland corporation tax rate could be distinct from such a rate or rates elsewhere in the UK without conflict with EU law.

Firstly it could be achieved by having several regional corporation rates within the UK rather than one national rate from which the Northern Ireland rate would be a derogation. Such an arrangement would require a wider redistribution of fiscal powers within the UK than would be involved in a simple enactment by either the central parliament in Westminster or on a devolved basis by the regional assembly at Stormont of a corporation tax rate applicable to corporate income in Northern Ireland.

Such devolution of power would not appear to present technical difficulties in terms of EU law, nor, as is discussed elsewhere in this letter any insurmountable technical difficulties in terms of prevention of tax avoidance within the UK. The decision as to whether such an approach presents difficulties would seem to rest more on UK political considerations than on technical or legal considerations. Political considerations are outside the remit of this letter, however we do appreciate that there would be an element of reshaping the entire UK tax system to facilitate a reduction in tax rates purely for Northern Ireland.

Secondly, a corporation tax rate applicable in Northern Ireland which differs from that applicable in the rest of the UK would be compliant with EU law if the Northern Ireland Assembly adopted such a rate on foot of lawful powers to do so, and accepted the political and financial consequences of that decision. To achieve this it would be necessary that the Northern Ireland Assembly should be given competence over the corporation tax rate applicable in the province and that the financial consequences of such a cut in the rate of corporation tax should be borne by the Assembly and should not be compensated for by an increased subsidy from central funds of the UK. We believe that this second situation is entirely feasible.


Posted

in

,

by

Tags:

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *