43 new projects from corporation tax deal

The Government is due to approve the establishment in Ireland of some 32 new IDA Ireland-backed projects and 11 new IFSC/Shannon-based companies before the end of the month under the terms of an agreement with the European Commission on Irish corporate taxation.

The new companies are considered "projects in the pipeline" by the Commission, allowing them to avail of continuing preferential tax rates of 10 per cent until 2010 and 2005 respectively. The Commission has seen and agreed the confidential list.

Companies establishing later will only be able to avail of the 10 per cent rate until 2003 when they will go on to the reduced general rate of 12.5 per cent.

The Government has also agreed, however, to put a ceiling on the number of new companies able to avail of preferential rates - 77 IDA Ireland-backed projects a year to 2003, and 67 IFSC/Shannon-based operations a year to 2000 - in order to allay fears in the EU that a rush of new investment would go Ireland's way. The figures reflect an average of the rates of establishment in Ireland over the last three years.

Agreement on the package went through the Commission unanimously yesterday, although the deal has taken many months to negotiate. The critical problem was the treatment of "pipeline" companies and the transition period for the reduction of the general rate of corporation tax.

The Commission acknowledged early on that companies already in place had "legitimate expectations" that could not be undermined.

The Taoiseach, Mr Ahern, is understood to have become involved last week in securing final Commission backing for the deal in a conversation with the President of the Commission, Mr Jacques Santer.

The talks - involving at various points Dublin officials and ministers, officials from the competition and internal market directorates and their commissioners, and the Irish Commissioner, Mr Padraig Flynn - have produced a package which the Commission now says is in conformity with EU competition rules. Significantly, the Commission decision makes no specific reference to the final general rate of corporation tax of 12.5 per cent, and Commission officials were at pains to stress that the decision on what rate to apply is entirely one for Ireland as long as it was a common rate. Nevertheless, it is clear that no deal would have been done without a specific undertaking from Dublin - a lower general rate would certainly have fuelled grievances from other member-states

which view the Irish regime as unfair poaching. Other potential grounds of complaint include the extent to which tax advantages are given even without any real economic activity in the State and the extent to which rules on profit determination within a multinational conform to OECD rules.