Policy re-evaluation of corporate taxation

THE Irish corporate tax system does not face any imminent changes due to objections from Germany and Belgium, according to Government sources. But new tensions about how the Irish tax system attracts overseas industry, at the expense of taxpayers elsewhere in the EU, are likely to be in a factor in a Government review now underway on the future of the 10 per cent corporation tax rate.

German finance minister, Mr Theo Waigel, told a meeting of EU finance ministers this week that corporate tax incentives elsewhere in the EU were affecting German tax revenue.

This was supported by France and Italy, and also by the Belgian minister who singled out a consolidation of operations by US medical company, Boston Scientific, in Ireland at the expense of Belgium.

The issue is currently being examined by the EU Commission. But Government sources say that Ireland has approval for a 10 per cent manufacturing tax rate until 2010 and a 10 per cent rate for the IFSC until 2005 and that there is no question of this being changed.

However the objections from elsewhere in the EU may influence the Government as it considers a policy approach to what happens after 2010 and what needs to be done to the rest of the corporate tax structure in the meantime.

Major corporate investors - particularly capital intensive plants in areas such as pharmaceuticals - are already pushing the Government for a decision on the matter so they can factor it in to their planning.

In the recent Budget, the Minister for Finance, Mr Quinn, said he was examining the 10 per cent tax issue. He continued recent moves to reduce the higher corporation tax rates with the 38 per cent rate falling to 36 per cent and the 30 per cent rate - which applies to the first £50,000 of profits - dropping to 28 per cent.

Prospects of substantive agreement on harmonising moves following the study now underway by EU Commissioner, Mr Mario Monti, are considered to be slim. But Ireland may have to take into account the concerns of its EU partners in planning the future of the corporate tax regime.