Corporation tax ‘may hit 17.5%’

IRELAND could yet be forced to relinquish its 12.5% corporation tax rate if it has to go to Europe for financial assistance to deal with the current debt crisis.

In that scenario “the decision about retaining the 12.5% corporation tax may be taken out of Ireland’s hands,” Bloxham Stockbrokers said in a note yesterday.

Within four years the brokers said we cold be faced with a figure of 17.5% if our funding problems intensify.

That view is shared increasingly among leading EU officials.

“It’s a fact of life that after what has happened, Ireland will not continue as a low-tax country but it will rather be a normal tax country in the European context,” said EU Economic and Monetary Affairs Commissioner Olli Rehn last week. He made his remarks after the Government disclosed that the bailout of the banks would cost a massive €50 billion.

However, Finance Minister Brian Lenihan promptly rejected the commissioner’s comments.

Mr Lenihan made it clear that the corporation tax rate will remain at 12.5%, adding that it was a “cornerstone of the Irish industrial policy”.

“Although Ireland may try to resist the outside calls to raise its corporation tax rate for as long as possible, we wouldn’t be surprised to see the rate pushed up to around 17.5% at some stage over the next four years as part of the fiscal consolidation plan,” Bloxham said.

At this stage Ireland has the lowest CPT in the European Union except for Bulgaria and Cyprus, which apply a 10% rate of tax on business profits.

From an Irish perspective any moves to force a change in the tax rate for business would be seen by the Government as a breach of the promises given at the time of the Lisbon Treaty.

At that critical time for Europe Ireland was given a commitment that if it voted Yes to Lisbon it would be allowed to retain its highly competitive CPT rate at 12.5%, despite the moves to create a harmonised rate across the EU in the interest of fair competition for overseas investment.

The IDA annual report said foreign companies accounted for €110bn or 70% of total exports in 2009.

It accounted for 300,000 jobs and a further 100,000 indirect jobs. International statistics show the Irish economy is more heavily reliant on FDI than any other European economy.