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UK Government Rejects Unified Irish Corporate Tax

by Jason Gorringe,, London

31 May 2007

The UK Treasury has poured cold water on a proposal to equalise Northern Ireland's corporate tax rate with the Republic's successful 12.5% rate.

According to a report in the Financial Times, a team appointed by Chancellor of the Exchequer Gordon Brown headed by former HM Revenue & Customs chief Sir David Varney unequivocally 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 UK 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.

The Treasury's reluctance to reduce Northern Ireland's corporate tax is likely to disappoint political and business representatives in the province seeking economic regeneration following three decades of civil turbulence. The Institute of Chartered Accountants in Ireland (ICAI), has said that a reduction of Northern Ireland’s Corporation Tax rate to 12.5% to match the Republic of Ireland would benefit business in both jurisdictions.

"A unified front on the taxation of trading activities on the island of Ireland will attract investment from abroad, and support all island markets to the direct benefit of both economies. We also believe that a corporation tax rate in the North which is in line with the South will encourage investment from South to North as well as from North to South," the ICAI’s Vice-President Jim Aiken told those attending the official opening of the ICAI’s new offices in Belfast city centre, performed by First Minister of Northern Ireland Dr. Ian Paisley.

"Growing prosperity north of the border generates growing prosperity south of the border, and vice versa if the conditions are right. We are making the conditions right by facilitating the ready movement of goods cross border, and our shared EU Membership has been integral to this. We must now take the next steps ourselves towards facilitating the ready movement of labour and services," Aiken argued.

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