Government signals intent to keep company tax low

IRELAND will today signal to the world its determination to maintain its edge in the market for international investment when the Government pledges to extend its rock bottom corporation tax regime far beyond 2010.

The Minister for Finance, Mr Quinn, confirmed yesterday that the Government will today promise to maintain a rate of 12.5 per cent on all manufacturing profits and of 25 per cent on all passive income when the current regime comes up for review in 2010.

Mr Quinn also expressed confidence, after extensive discussions between officials and the European Commission's competition directorate, that the pledge would be "broadly acceptable" to Brussels.

Ireland's current 10 per cent rate, which applies to manufacturing and internationally traded services had Commission approval until 2010. It has been subject to some recent criticism from fellow members states who believe it represents unfair competition for jobs.

But in discussions between EU finance ministers yesterday on the aim by the Commissioner for the Internal Market, Mr Mario Monti, for harmonsiation of tax rates, Mr Quinn defended Ireland's approach and insisted that any examination of unfair competition practices should take account of state subsidies which dramatically reduced effective tax rates.

Later, Mr Quinn made clear to journalists that Ireland stood by its Maastricht Treaty right to determine its own tax rates. He was prepared, he said, to see a code of conduct agreed at EU level but Ireland would not give up its sovereign right. He was also prepared to talk at EU level about agreements on transfer pricing.

Mr Quinn said the tinting of the announcement had nothing to do with the election but was the fulfillment of a commitment made in the January budget that the issue would be reviewed.

Manufacturing firms currently pay to per cent tax on their trading activities. Other companies pay tax at 36 per cent. There is also a special 28 per cent rate on the first £50,000 of profit in a bid to help small business.

From 2010 there will be just two rates, 12.5 per cent and 25 per cent, with the latter rate applying to passive income from rental income and the like.

Mr Quinn would not be drawn on Fianna Fail's call for a continuation of the 10 per cent rate, saying that he did not want to get involved in a auction and that the strength of the current commitment was that it enjoyed all party support. Because of that, it was possible to promise companies interested in investing in Ireland a certainty of continuity in Government policy.

The finance ministers' meeting also marked the first appearance here of the British Chancellor, Mr Gordon Brown. Mr Brown pledged to continue playing a constructive role in the council, paying tribute to the much admired role of his predecessor, Mr Ken Clarke.

He also secured a Commission nod and a wink for Labour's election promise to reduce VAT on fuel from eight to five per cent despite the latter's ostensible support for a minimum rate closer to 15 per cent.