We have to be cautious on corporation tax reduction
Northern Ireland could lose political friends if it becomes a haven for big profit firms, argues Brian Walker
Published 13/01/2011 | 08:00
The issue of lower corporation tax for Northern Ireland has aroused considerable interest in recent months. The economic benefits of such a change have been clearly described. Less attention has focussed on the political and moral implications of this proposed tax change.
A special, low corporation tax for Northern Ireland could have serious political repercussions at the UK level. If we obtain a reduction, Scotland and Wales will want to be included. If they are not, there will be resentment at special treatment for Northern Ireland.
Recently, journalist Polly Toynbee was one of a number of British commentators who attacked the Irish Republic's 'shameless status as Europe's greatest tax haven'. She was responding to the announcement that a major British company, Northern Foods, now merged with Greencore, plans to shift its headquarters to Dublin. None of its factories will transfer, 'just its brass plate and its profits'.
So far, the Irish Republic has got away with this situation, but we are dependent on the goodwill of London. What happens if a major British company transfers its 'brass plate' to Belfast, and so the London exchequer loses most of its tax revenue? Will we still have friends in London?
In addition, currently we enjoy parity of tax and benefits with the rest of the UK. If there is no longer parity of tax, this could lead to questions about our right to parity of benefits.
At the European level, such a change could also have implications. We have received great economic assistance in the past from our European neighbours. They will not appreciate some of their company headquarters relocating here and avoiding their tax.
To date, the Irish Republic has been able to retain its low corporation tax in spite of strong European objections. It will be interesting to see if they are able to keep it in the future. European leaders such as Angela Merkel of Germany, have politely said the Republic's tax arrangements are its own business, but how long will they retain this position, in face of the enormous loans they have given recently to the south?
There is also a serious concern as regards America. President Barack Obama has been very critical of American companies which relocate their headquarters abroad to tax havens and so avoid paying American tax.
One such example is Google. This company makes a massive profit from its European, Middle East and African business, but all this is returned to an Irish subsidiary in Dublin which means it pays greatly reduced tax.
Between tax arrangements in Ireland and the Netherlands, it is reckoned that Google, the third-largest tech company in the US, has been able to slash its tax bill by $3.1million. President Obama is not impressed, as most of the loss has been to the US exchequer.
It will be interesting to see how he responds this year to his visitors from Ireland on St Patrick's Day.
Finally, there are moral considerations. In the population at large there are questions now being asked about the morality of tax havens which allow companies and individuals to avoid paying tax which is needed to pay for public purposes, such as hospitals and schools. The advantages of a reduction in corporation tax in Northern Ireland have been well rehearsed. It is important that we are aware that potentially there are important political and moral implications of such a change.