Varney Urged Not To Dismiss Unified Irish Corporate Tax Rate

by Jason Gorringe, Tax-News.com, London

20 June 2007

The Institute of Chartered Accountants in Ireland (ICAI) met Sir David Varney in Dublin on Monday as he carries out his review of Northern Ireland Tax Policy for the UK Chancellor of the Exchequer.

ICAI told Sir David that a low corporation tax rate would not only encourage indigenous entrepreneurship in Northern Ireland but also foster inward investment, and that technical obstacles that are being raised to such a move, principally the restrictions in the EU Treaty, can be overcome.

“We outlined to Sir David how perceived obstacles to a lower tax regime in Northern Ireland could be dealt with. We also took the opportunity to raise other tax matters which would be to the benefit of the Northern Ireland economy. As an all-island organisation with extensive first hand experience of tax issues north and south, we are well placed to contribute to Sir David’s important review of tax policy,” explained Eamonn Donaghy, Chairman of the Institute’s Northern Ireland Tax Committee.

Further representations to Sir David’s review will be made by ICAI before his report is finalised.

Despite what appears to be widespread support for a unified Irish corporate tax rate from business and politicians in Northern Ireland, the UK Treasury has poured cold water on the proposal, arguing that it would help UK-based multinationals avoid tax.

According to a report in the Financial Times, Varney's review team rejected the idea in a meeting with local politicians and business leaders last week.

Citing one of the Treasury officials on the visit, the FT reported that Varney "absolutely dismissed the idea" of a 12.5% corporate tax rate for Ulster. "He discussed a very wide agenda, but it was clear corporation tax was not part of that agenda at all," the official was quoted as saying.

The rate of corporate tax in the UK has been 30% for a number of years, although this is being reduced by 2% as a result of Gordon Brown's last budget.

It is believed that the Treasury is concerned that cutting corporate tax in Northern Ireland to the same level as the Republic would give UK-based businesses an easy way to avoid tax through transfer pricing, whereby they would channel profits through an Ulster-based subsidiary without carrying on any economic activity there. A reduction in corporate tax in one part of the United Kingdom and not others may also fall foul of European Union state aid rules.

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