Ireland May Appeal UK's 'Tax Haven' Decision

by Caroline Maxwell, Tax-News.com, London

24 September 2002

Reports have suggested that Ireland may mount a legal challenge to the UK's recent decision to include the Republic on a list of countries designated as 'tax havens' for the purposes of Controlled Foreign Companies (CFC) regulation.

In a statement released in July of this year, the Inland Revenue announced that:

'The government has decided that changes to the rate of corporation tax (CT) in Ireland mean that it is no longer appropriate for companies operating there to enjoy automatic exemption from the UK's CFC rules. Changes to the relevant regulations will be made on 20 September, and will take effect as regards accounting periods of CFCs beginning on or after 11 October 2002.'

The tax authority went on to explain that in light of the Irish government's decision to set its corporate tax rates at 12.5%: 'it is no longer possible readily to distinguish between Irish CFCs that have been established there for genuine commercial (as opposed to tax) reasons and therefore inappropriate to automatically exempt them.'

However, as the only EU member state not to automatically receive this exemption, Ireland feels that the UK's decision may mark the start of a sustained international attack on its plans to maintain an attractive corporate tax regime.

The Irish Sunday Business Post reported that Taoiseach, Bertie Ahern made a last minute telephone call to Prime Minister, Tony Blair in an attempt to stop the rule change on Friday, but to no avail.

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