Changes to Irish tax rate will not be sought

CORPORATION TAX:THE BRITISH government is not seeking changes to Ireland's low corporation tax rate as part of the price for offering up to £7 billion of loans, it is understood.

It has taken this stance despite the loss of several UK operations to Ireland in recent years and in spite of such demands being voiced by other European Union member states.

Throughout yesterday, leading British politicians, including chancellor of the exchequer George Osborne insisted that the UK was willing, if a request was made for help, to come to Ireland’s aid in its own national interest, because it shares a land border with the Republic and also because it is one of its biggest export markets.

The health of several major UK banks is heavily dependent on Ireland’s economy, as was pointed out on Tuesday by the governor of the Bank of England, Mervyn King who said the exposure, which stands at £83 billion, is “by no means trivial”.

Royal Bank of Scotland, which is 84 per cent owned by the British government, has £50 billion worth of outstanding loans, £35 billion of which are held by its Ulster Bank subsidiary. The subsidiary, which was the first to offer 100 per cent mortgages in the Republic, holds £21 billion worth of Irish mortgages on its books. Lloyds Banking Group, which is 43 per cent owned by the British government, has £27 billion worth of loans in the Republic, £11 billion of which are residential mortgages.

The British government’s stand on Irish tax rates is partly based on its reluctance to see the EU wield powers over the ability of any EU state to set its own tax laws and partly because some leading ministers, notably Northern Ireland Secretary of State Owen Paterson, favour allowing the Northern Ireland Assembly and Executive powers to cut corporation tax rates levied there.

Peter Bunting, assistant secretary, the Irish Congress of Trade Unions (Ictu), during an appearance before the Northern Ireland Affairs committee in the House of Commons, yesterday opposed calls for Northern Ireland to match the Republic’s 12.5 per cent corporation tax, saying it was “a scatter- gun approach” that would benefit business, but not create jobs.

Ictu tax adviser Richard Murphy warned that real corporation tax rates in the North could drop to as little as 5 per cent in real terms if the change was made, adding the profits made by businesses would not stay there.

“The 12.5 per cent rate has been a good calling card for the Republic, but the truth is their real rate is near enough 0 per cent and, if Northern Ireland seeks to copy that, it will fall foul of large parts of UK law and outright transfer pricing disputes will break out between Great Britain and Northern Ireland – who will need different tax authorities to deal with this.”