Monday 5 December 2016

EU has our corporation tax in its sights after UK quits

Government fears attempts to clamp down on our 12.5pc rate

Published 27/06/2016 | 02:30

Taoiseach Enda Kenny speaks at a farewell luncheon for US Vice President Joe Biden at Farmleigh House yesterday. Photo: Steve Humphreys
Taoiseach Enda Kenny speaks at a farewell luncheon for US Vice President Joe Biden at Farmleigh House yesterday. Photo: Steve Humphreys

European heavy-hitters have been warned not to come after Ireland's low corporation tax or we will leave the EU, too.

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Our regime is expected to come under renewed scrutiny in the wake of Britain's exit as they were our strongest ally in fending off demands for tax harmonisation.

But Fine Gael MEP Brian Hayes told the Irish Independent: "That is the absolute red line issue. Any attempt made to cajole us [on corporation tax], as far as I'm concerned, we're out the door.

"We cannot be tied into an anti-business, anti-growth pact while the Brits are allowed to move on.

"We have a lot more to lose than anybody else."

Ireland holds a veto over any changes to our tax system, but sources said the current turmoil will see everything put on the table as EU leaders struggle to deal with the fallout from a Brexit.

Click to enlarge
Click to enlarge

Already, Ireland is under increasing pressure to show greater enthusiasm for new disclosure rules which oblige countries to share information about tax rulings with other member states.

And a report compiled by the ESRI in advance of Brexit warned that the UK is likely to significantly reduce its 20pc corporation tax rate closer to Ireland's in the wake of leaving the EU to try to attract foreign direct investment.

Public Expenditure Minister Paschal Donohoe said Ireland would now look to other countries that have similar regimes to our own to fight off any potential moves from Germany and other big countries.

"Even though the UK will be leaving, the rationale for our corporation tax regime hasn't changed.

"We've always been very clear that we have this particular system in place, which is transparent to offset other disadvantages that our economy has, not least the fact that we are a small, open economy but not part of the continent of Europe," he said.

It comes as Taoiseach Enda Kenny prepares to travel to Brussels tomorrow for a meeting of EU leaders which will initially include outgoing British Prime Minister David Cameron.

There were mixed message from varying leaders over the weekend as to how quickly Britain should invoke Article 50, which requires the formal negotiations for their departure.

Our Government is to seek a special deal which will allow Irish nationals to continue to work and travel in Britain without a visa. However, there is no guarantee that other EU countries will agree to this.

Initially, the key priorities are maintaining trade with the UK, guaranteeing free movement of people between the UK and Ireland and protecting the relationship between the Dublin and Belfast administrations.

One senior Government source said last night that ministers had been warned to put a "positive face" on the Brexit fallout but "a massive task" lies ahead.

Behind the scenes, there are serious concerns that it will damage economic growth and reduce the Government's ability to increase investment in housing and health in future budgets.

The new Rainy Day Fund, which was expected to accumulate €3bn between 2018 and 2021, is now also in doubt, as is the time frame for the impending sale of AIB.

However, one minister last night said Ireland needs to start looking at potential inward investment that could be achieved on the back of Brexit.

"The banking and financial sector will see huge benefits in Ireland now.

"A lot of companies already have offices here and in London. It's likely that most will keep their London bases but we should be chasing future investment," the minister said.

They also noted that Northern Ireland could be the immediate big loser on corporation tax.

The NI Executive had set a date of April 2018 for matching the Republic's 12.5pc rate.

"Now that they are no longer in the EU, it's a real kick in the teeth for business in the North," the source said.

Mr Hayes said the Taoiseach must insist that his European colleagues agree to two deals, one between Ireland and the UK and one between the EU and the UK.

"We will need more opt-outs on Europe regulations. We cannot be disadvantaged by this," he said, referring to areas such as agriculture and energy.

Irish Independent

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