Belfast Telegraph

Euro crisis won't rock Republic's low tax rate

By David Elliott

The current crisis in the eurozone won't put the Republic's low rate of corporation tax into jeopardy, according to a local tax expert.

Eammon Donaghy, from KPMG in Belfast, said that despite recent calls from euro leaders for a unified rate of business tax across all countries which use the euro, such a move is unlikely to take place.

"Whilst the (eurozone) crisis is indeed real and will have very big implications for Northern Ireland, Great Britain and the Republic of Ireland, what it will not lead to is an increase in the corporation tax rate in Ireland," Mr Donaghy said.

The Republic's corporation tax rate is 12.5% compared to 33% in the likes of France and Germany.

Enda Kenny's government had been at pains to protect its treasured 12.5% rate but was forced to weaken its grip in recent months in order to maintain good relations with it's creditors, the European Union and International Monetary Fund.

French President Nicholas Sarkozy had blocked an interest rate cut on the Republic's bailout loan by insisting the Irish government diluted its tax regime, seen by many as drawing overseas investment away from neighbouring regions.

Advocates for a cut in the main rate of business tax in Northern Ireland insist many millions of pounds have been lost to the Republic over the years as foreign companies avoid our relatively high tax.

But the Republic managed to push through an interest rate cut on its bailout loan by agreeing to "constructively engage" in discussions to adopt a common consolidated corporate tax base.

Such a move wouldn't harmonise corporate tax rates but would lessen the ability of overseas companies to maximise profits recorded in the Republic.

"The Commission's main tax unification issue is the Common Consolidated Corporate Tax Base and not a unified rate, let alone an attack on any one member state's corporation tax rate," Mr Donaghy said.

Nevertheless, the concession was seen as a sign that Enda Kenny could be forced to cut business tax rates.

If that were to happen, question marks had been raised over the need for Northern Ireland to be allowed by the UK Treasury to lower its corporation tax.

But Mr Donaghy believes the Republic will stand firm on its 12.5% rate.

"My pretty confident prediction for 2012 is that the Irish corporation tax rate is here to stay for many years to come," he said.

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