Thursday 19 January 2017

Double tax threat from UK rate cuts and new EU rules

Published 24/10/2016 | 02:30

Theresa May could slash corporation tax to 10pc if the EU uses Brexit negotiations to block Uk banks and businesses from the single market. (AP Photo/Alastair Grant)
Theresa May could slash corporation tax to 10pc if the EU uses Brexit negotiations to block Uk banks and businesses from the single market. (AP Photo/Alastair Grant)

Britain could slash corporation tax to 10pc if the European Union uses the Brexit negotiations to block UK-based banks and businesses from the single market.

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A plan that would see Britain halving its headline tax rate from 20pc has reportedly been put forward by Prime Minister Theresa May's advisers, amid growing fears other EU member states will take a hard line in Brexit negotiations.

The move would be a massive blow to Ireland which is already under pressure from Brussels over tax.

The European Commission will propose legislation to clear the way for a Common Consolidated Corporate Tax Base (CCTB) tomorrow, despite repeated objections from the Government here.

With the UK threatening to slash its tax rates if it is locked out of the Single Market following an exit from the European Union, Ireland faces the prospect of being drawn into a common EU tax regime while Britain is freed to adjust its tax rules to attract foreign direct investment.

The proposed British tax cut is reportedly being pushed to pile pressure on the 27 remaining EU member states to allow the UK to retain so-called 'passporting' rights for its financial services firms, allowing them to continue selling services into the single market.

But the junior finance minister Eoghan Murphy said he wasn't concerned at the prospect of the UK lowering its corporate tax rate, saying the consistency of Ireland's 12.5pc rate is still more attractive.

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"If you can change and lower your tax rate so easily you can raise it just as easily," he said.

"That kind of inconsistency is what puts people off other markets - for example some would say that France has an inconsistent personal tax rate because it goes up and down depending on who's in government.

"In Ireland it's 12.5pc and it's consistent at that rate and that's why it's attractive. Multinationals know what they're getting and they know what they're going to get into the future," he added.

However, the prospect of aggressive tax competition from the UK is undoubtedly unwelcome, especially after the new UK Chancellor Philip Hammond signalled he wouldn't pursue his predecessor George Osborne's earlier tax cutting strategy.

The developments come at an especially tricky time for Ireland. The Commission will tomorrow launch its latest assault on tax rules here and in other countries with rules favoured by large multinationals.

The plans include a proposal to ban transfer pricing, a practice that allows big companies like Apple to cut bills by shifting profits through low tax countries.

Previously Ireland and the UK acted together to veto roll-back EU tax harmonisation.

Meanwhile, Ms May is to revive regular meetings with devolved UK governments in Northern Ireland, Scotland and Wales, to discuss how they can work together to get the best outcome from Brexit, the Prime Minister's office said in a statement.

The so-called Joint Ministerial Committee hasn't met since December 2014.

Irish Independent

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