McCreevy quantifies corporation tax cut

A reduction in the general rate of corporation tax in Ireland to 12.5 per cent would cost the exchequer £400 million a year in lost revenue, the Minister for Finance, Mr McCreevy, told journalists here yesterday. The cost of bringing the rate to the 10 per cent currently prevailing in the IFSC, Shannon, and for manufacturing exports, would be a further £250 million a year, he said.

Mr McCreevy, in Brussels for a meeting of EU finance ministers, was responding to questions about what are understood to be difficult ongoing talks between the Commission and the Government over the Irish corporate tax regime and about the publication yesterday of the draft code of conduct on tax competition by the Internal Market Commissioner, Mr Mario Monti.

Although the voluntary code "notes that unrestrained tax competition for mobile forms of business increasingly threatens to cause economic distortions and to erode tax bases within the Community", it stops short of urging tax harmonisation between members states.

However, it does require member states to do away with internal sectoral or geographical discrimination and suggests a two-year transition time frame, considerably shorter than the Government's intended transition to a common rate of company taxation by 2010.

Mr McCreevy was coy about whether Ireland would back the code when in comes back to ministers in December. But diplomatic sources suggest that it has been sufficiently watered down to be made acceptable, most notably by the removal of a reference to a review of the code in two years that would involve international harmonisation.

Mr McCreevy was even more reticent about the talks with the Commission, beyond accepting that what was at stake was agreement on the tax treatment of new investment in the period after 2000, the cut-off date for the IFSC investment regime (although the 10 per cent tax will still apply there until 2005 in respect of investments already in place).

With the Commission understood to be in principle insisting that new investment be subject to the general corporation rate of 35 per cent, negotiations are believed to focus on the speed of reduction of the 35 per cent rate to 12.5 per cent or 10 per cent, promised by the Government for 2010. If such a date can be brought forward sufficiently, observers suggest, the Commission is likely to be willing to accept new investment in the IFSC at the lower tax rate in the interim period.

The fiscal implications of such a deal are quite heavy, as Mr McCreevy made clear yesterday. The Minister refused to show any more of his hand but reminded journalists of manifesto commitments on personal and business taxation that he said had to be honoured.

Sources close to the Minister also made clear that they believe the Commission will take a different view to the enterprise zones suggested for regional airports which are part of a distinct programme of urban regeneration.