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Dan White: UK tax move could render our 12.5pc rate redundant

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Minister for Finance Michael Noonan

Minister for Finance Michael Noonan

Minister for Finance Michael Noonan

Every year, in either late November or early December, the UK Chancellor of the Exchequer delivers the annual autumn statement to parliament. The statement reveals the broad outline of the following year's budget.

George Osborne (below) unveiled this year's autumn statement last week. On this side of the Irish Sea the main point of interest was Osborne's announcement that Northern Ireland might be allowed to set its own company tax rate.

If, and it's still a very big "if", Northern Ireland gets the power to set its own company tax rate then it will be able to compete on a more equal footing with the Republic for foreign investment.

Could we soon see the likes of Apple or Google locating in the North rather than in the Republic?

While a Northern Ireland, and possibly Scotland and Wales also, armed with a low company tax rate would certainly force the Republic to up its game when seeking to lure multinationals to this country, we shouldn't exaggerate the likely threat.

In fact, when Osborne's statement is closely scrutinised one can't help wondering if lower company tax rates for Northern Ireland and the other UK regions aren't the fiscal equivalent of the matador's cape - a diversionary tactic designed to distract the bull while the blade goes in elsewhere.

implications

Whatever the truth of the matter, all of the attention lavished on the prospect of lower company tax rate meant that other measures contained in the autumn statement with potentially far more serious implications for us, went largely unnoticed in this country.

Mr Osborne promised a crackdown on multinationals that "artificially" shift profits made in the UK overseas.

The new measure, which was almost immediately dubbed the "Google Tax", would see such profits taxed at 25pc rather than at the UK's current 21pc company tax rate.

"We will make sure that big multinational businesses pay their fair share," he told the House of Commons.

Before it can become law the EU Commission will have to adjudicate on whether or not the "Google Tax" complies with European Single Market regulations.

However, if I were a betting man my wager would be that securing EU Commission approval for the measure may represent less of a hurdle than many expect.

This is because what is widely perceived to be aggressive tax avoidance by such US multinationals as Apple, Google, Amazon and Starbucks has become an extremely controversial issue in most of the large European countries.

Will the EU Commission want to fan the flames of euroscepticism by blocking such a popular measure?

Is it not far more likely that France, Germany and Spain, all of which have had their own tax-related run-ins with the multinationals, will follow suit with similar measures?

As I have written previously the real threat to our low corporate tax system is not a diktat from either the EU Commission or the OECD ordering us to increase the rate from the current 12.5pc.

That was never going to happen.

No, the real danger was always that one or more of the large EU countries would introduce measures that render it irrelevant.

offshore

The "Google Tax" threatens to do just that. By taxing multinationals on all profits made from doing business with UK customers, regardless of whatever steps they have taken to shift those profits offshore, Ireland's 12.5pc company tax rate suddenly becomes far less attractive.

Sure, profits actually made from operations actually performed in this country will still qualify for the 12.5pc rate.

But measures such as the "Google Tax" will make it much more difficult for the large US multinationals to exploit loopholes in international tax treaties to allow profits actually earned elsewhere to qualify for the lower Irish tax rate.

This in turn will make Ireland far less attractive as a location for foreign investment projects.

While the Irish government was busy defending the 12.5pc company tax rate, the UK Chancellor sneaked round the side and has, it appears, has outmanoeuvred us.

Game, set and match to George?


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