No hike to be sought in corporation tax

THE Government will not be forced to increase the corporation tax rate as part of the deal for funds to bailout the banks, German and EU sources have confirmed.

However, other changes to the tax system for companies will have to be made, but probably not immediately.

The decision comes as a public debate is opening up on why big business should not help foot the bill for the banks’ bad loans and the state’s overspending.

“The corporate sector like everyone else should make a contribution towards rescuing Ireland from its current very difficult situation,” said the Social Justice Ireland group, which has proposed a temporary 2.5% levy on corporate profits.

But yesterday Germany’s government spokesman Steffen Seibert said it was a matter for the Irish government.

“The German government greatly supports the Irish government’s policies and has great confidence in the courageous reform policies in the four-year programme it is expected to present in early December,” he told journalists in Berlin.

The government has insisted that the low corporation tax rate of 12.5%, the second lowest in the EU, is a major plank in the country’s success in attracting foreign direct investment. More than 1,000 multinationals have their European base in Ireland and last year paid €3.9 billion in taxes.

An EU source said the troika of European Commission, IMF and European Central Bank, would not insist the rate be changed.

“We have realised it is a casus belli [incident of war] for the Irish…. The rate will stay but there are other ways”.

“For Greece it was military spending — they have one of the highest defence budgets in the EU and they are very attached to that — so it was not touched,” he added.

European Economics Commissioner Olli Rehn was said to be surprised that the single united message he received from all parties he met in Dublin — from government to trade unions — was not to touch corporation tax.

Brussels-based economist Daniel Gros said that sooner or later he believes Ireland will be forced to raise the rate. But he added that companies in other countries actually pay less tax than they do in Ireland, thanks to special deals.

Ikea, for instance, paid just 13% on their worldwide profits earlier this month thanks to the combination of tax breaks they can avail of from Flanders. In Luxembourg the real rate can be below 10%.

“But perception is the real issue and the headline for Ireland is 12.5%” he said, and the fact that companies can use loopholes in the Irish system to transfer profits and deprive other countries of tax.

For instance German companies can establish themselves in Ireland, lend money to the German based entities and claim a tax break from the German government.

Picture: Olli Rehn: EU Economics Commissioner said to be surprised at message to not touch tax rate of 12.5%.