Ireland will be allowed to retain corporation tax rate

By Ann Cahill, Europe Correspondent

Tuesday, November 23, 2010

IRELAND will be allowed to retain its 12.5% corporation tax rate, but is under pressure in bailout talks to give fewer tax breaks to foreign multinationals, say EU sources.

Sweden has confirmed it is preparing to offer Ireland a loan of up to €1 billion and the Danish government is also considering offering funds. Britain has already said it will do so too.

However, in the European Parliament the president of the ECB, Jean Claude Trichet, hit out when some Irish and other MEPs accused him of capitulating to speculators over the Irish crisis. He did not name Ireland, but said the crisis was a result of bad fiscal behaviour in a number of countries.

The Government has said that the headline rate of 12.5% is a "red line" and getting undertakings from the EU, IMF and ECB that it would not be touched delayed the negotiations last week. However, EU sources say they are exploring widening the tax base which would reduce what countries such as Germany see as loopholes through which their companies can reduce their German tax bill.

Noel Murphy of Cork-based Parfrey Murphy Chartered Accountants said: "Europe might consider limitations on measures that were originally designed to make Ireland a more attractive location for holding companies."

This could include changing measures introduced in the 2004 Finance Act, or the research and development tax credit regime, or possibly an end to the corporation tax holiday introduced in the 2008 Finance Act.

Work with EU, IMF and ECB officials is continuing in Dublin on the details of a radical restructuring of the banks that will see banks merged, sold, shut and slimmed down.

"It’s what needs to be done. We could not have afforded to do it ourselves," said a government source.

Only when the details have been worked out by the middle of next week will the final sum to be made available to the state be known, though it is expected to be in the region of €85 billion.

Sweden has said it is considering offering up to €1bn to Ireland and the Danish government is also considering a bilateral loan. Neither are members of the eurozone and do not contribute to the EU’s €440bn fund.

Sweden’s finance minister, Anders Borg, said: "For an export-dependent country like Sweden, it is essential to help contribute to financial stability."

Britain has already said it would be willing to contribute a loan, said to be around €8bn. This would give them a say in the overall EU-IMF package in which they are interested given that, after the ECB, they are Irish banks’ largest creditor being owed around €109bn.

The cost of borrowing for Ireland increased again yesterday and commentators warned there were ongoing fears of contagion in the euro zone, with Portugal seen as the next most vulnerable country.

This appeared in the printed version of the Irish Examiner Tuesday, November 23, 2010