UK tax cut threatens Irish foreign investment

The government should think about adapting Ireland’s personal tax system to a more attractive model because of the high competence of other countries’ corporate taxation systems.

Yesterday, the British prime minister Theresa May spoke briefly about her idea to make corporation tax in the UK the lowest out of the top 20 economically developed countries. She also expressed a desire to be “profoundly pro-innovation”, addressing the message to the Confederation of British Industry in London.

There’s a difficulty to make the UK’s corporation tax the lowest, as Donald Trump promised to make the US tax as low as 15%. So Mrs May can decide to go forward to the Ireland’s 12.5%, as it’s already planned to reduce the country’s corporation tax to 17% during the following 3 years.

The Ibec director of policy Fergal O’Brien says that the intentions of the country to attract FDI are evident and have to be implemented, no matter if this particular plan by Theresa May works.

“It is clear that the UK is going to make its tax offering for mobile investment, and in particular for innovation activity, more attractive as a response to Brexit. Ireland’s corporate tax offering remains very competitive but we must urgently address the attractiveness of our personal tax regime, which is very competitive for mobile talent.

“Much greater focus is also needed on liveability issues such as housing, infrastructure and childcare,” Mr O’Brien said.

Ireland’s personal tax rates remain quite high by international standards, with workers hitting the higher rate of tax at €33,000.

Michael Noonan introduced minor changes to the universal social charge in the budget and pledged to cut rates further over the next two budgets.

Ian Talbot, the chief executive of Chambers Ireland, said that a low corporate tax rate coupled with other improvements in the UK business environment could make multinationals “reassess their location priorities”, especially if Ireland became relatively less attractive.

“Ireland should not be unduly concerned that a lower UK corporate tax rate would threaten Ireland’s growth. A low headline rate of corporate tax will not in and of itself divert investment away from Ireland.

“Ireland’s unfettered access to the EU customs union and single market is likely to become a source of comparative advantage post-Brexit. An economy must be competitive across a number of fronts in order to win large scale FDI, and this is something Ireland has traditionally been very good at.”

Joe Tynan, the head of tax at PwC, said that competition for FDI was increasing but added that the UK had been inconsistent in the past. “Tax is a key differentiator but it is more than the rate. It is also the consistency of tax policy. The UK’s message on where the corporate tax rate is going has varied so this lessens its impact,” he said.

A spokesperson for the Department of Finance declined to speculate on potential changes to UK tax policy but emphasised the competitive nature of Ireland’s tax offering.

Separately, a joint report compiled by the World Bank Group and PwC released yesterday found that Ireland had the most business-friendly tax regime in the EU and the fifth best in the world. It found Ireland’s tax system to be the most efficient in the EU in terms of bureaucracy and administrative burden.

The research said that Ireland’s statutory headline rate on profits was broadly similar to the effective rate, unlike many other countries.

“The report confirms that Ireland is competitive on corporate taxes but also on the costs of employing people. Ireland places a comparatively reasonable tax burden on employment. This is increasingly more important, as international companies decide where to locate key international centres,” Mr Tynan said.

Arthur Bingham
Arthur Bingham

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