The Northern Ireland Select Committee of the House of Commons has suggested today that the corporate tax rate in Northern Ireland should be cut to 12.5% to match that of the Republic of Ireland. I wrote a report on this subject last year for the TUC and Irish Congress of Trade Unions. Entitled “Pot of Gold or Fool's Gold” sets out my arguments in full. There are many of them. I will highlight three.
First, the chance that such a tax rate could be introduced in Northern Ireland without falling foul of EU law is remote in the extreme. And if it proved to be illegal the damage to the Northern Ireland economy as a result of the consequent uncertainty could be considerable.
Second, the Republic's low tax offering is not just a low tax rate — it's also a low tax base. The tax collected by any state is the tax base multiplied by the tax rate — and because both are low in the Republic then many companies operate there and pay little or no tax at all. This is something Northern Ireland could not emulate unless it were, in effect, to cede from the UK for tax purposes.
But doing that would have massive implications. First, the rest of the UK would then need to put up massive tax barriers to trade with Northern Ireland to prevent artificial tax abuse by companies really located in England, Scotland or Wales, That would be enormously harmful in terms of administrative burden to doing trade with Northern Ireland. And second, if it is assumed that the reduced tax rate will bring in increased taxes in Northern Ireland (and those proposing this idea seem to think that it will — although there is no evidence at all that the Laffer curve on which they base this idea actually exists) then that assumed increase in tax revenue has to be deducted from the subsidy now given to Northern Ireland so that it does not get a double dose of regional aid under EU law. The risk is if the assumption of increased tax is wrong — as I think not just likely but absolutely certain if the Republic's experience is copied — then the funds available for public services in Northern Ireland will be cut severely. As a result this folly, promoted by the tax accountants of Northern Ireland for the benefit of their clients will impose real and lasting cost on ordinary people throughout Northern Ireland. And that's a risk no one should take.
Which is why I and the trade union movement on both sides of the Irish Sea oppose this move.
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You Say “First, the rest of the UK would then need to put up massive tax barriers to trade with Northern Ireland to prevent artificial tax abuse by companies really located in England, Scotland or Wales, That would be enormously harmful in terms of administrative burden to doing trade with Northern Ireland.”
Are there already “massive tax barriers…to prevent artificial tax abuse” when an E, S or Welsh company does business with a company in Ireland?
If not why not 😉 If your statement above is true
In the question above Ireland relates to the Republic of Ireland
I am not saying that there are obstacles to trading with companies in Ireland in every case. I am saying that there will be substantial obstacles to companies under common control trading in Northern Ireland. So, for example, Tesco’s will have to prove if it ships a tin of baked beans from its UK operation to its Northern Ireland operation that it was applying a proper transfer price. That should create quite a lot of fun. And I note that the chartered Institute of tax agree this morning in their press release on this issue.
And if First Minster Alex Salmond and his government achieves the same ability as Ulster is seaking, what would you have to say about that Mr. Murphy? (p.s., are you Irish yourself?)
And if First Minster Alex Salmond and his government achieves the same ability as Ulster is seeking, what would you have to say about that Mr. Murphy? (p.s., are you Irish yourself?)
Scotland would be as mad to do it as Northern Ireland unless it is independent
And then it will just shoot itself in the foot if it does it
Again, the CIOT agree
I am not sure that the CIOT can be said to agrree http://www.tax.org.uk/media_centre/Press+Releases/Corporationtaxdevolutionachallengingopportunity.htm in this post
the further analysis in the consultation response here is also useful http://www.tax.org.uk/media_centre/Press+Releases/Corporationtaxdevolutionachallengingopportunity.htm
As a soundbite from the consultation response :
Question 1: What effect will the reduction in the corporation tax rate on a
UK wide basis announced in the June 2010 Budget have on the
competiveness of the NI economy?
Over 70% of respondents see the benefits as worth having.
There verbal evidence and press release is laden with warnings
They have advised against this for Scotland