‘Double-Irish’ death knell hangs heavily over Coalition

British prime minister David Cameron took a sideswipe the other day at Ireland’s corporate tax regime and so too did chancellor George Osborne. Amid torrents of tax pressure on the Coalition from Brussels, Berlin, Paris and senior Washington politicians, the British stance bears some scrutiny.

With a decision imminent on the fate of the infamous “double Irish” scheme, in Government Buildings they duly took note of Cameron’s intervention. While he has always made a big political deal of his support for the OECD’s campaign to prise more tax from big business, his own administration has made no secret of its effort to push back the boundaries of the British tax regime. The central thrust of its policy is to bring the tax rate on profits down to 20 per cent next April, from 30 per cent in 2007. A long and ever-growing line of additional trappings make the offering more attractive still.

The result is Britain is a big competitor to Ireland in the inward investment superleague, prompting no end of warnings in professional and official circles in Dublin about the pressing need to maintain the competitiveness here.

The argument is quietly made too that Cameron – a friend of Taoiseach Enda Kenny – is playing both sides of the tax argument. The man who would will the OECD to put the business world to rights has no compunction about a “patent box” system , which has at its core a preferential 10 per cent rate on profits from patents.

There might yet be state aid proceedings in Brussels against the “patent box”. Yet there were guffaws in London last week when the European Commission unveiled its case against Apple’s Irish arrangement.

The net point is this: for all Cameron’s moral righteousness on tax, Britain is as keen a purveyor of advantage as any other country in this space. The German government sees Cameron’s embrace of the OECD initiative as a calculated effort to widen the corporate tax base in Britain so he can bring the basic rate there close to the prevailing 12.5 per cent in Ireland.

With the British public finances still overstretched in the aftermath of the 2008 crash, the thinking goes that this would help London intensify its competitive charge in the battle for multinational investment without eroding the corporate tax return.

Possible reprieve

So where does all of this leave the Government? The Cabinet gathers today to settle key budget questions. At issue in the business tax space is whether the “double Irish” is phased out from the start of 2015 or given a last-minute reprieve.

Moves in the direction of immediate elimination met resistance in the business community in the summer. Still, persistent international pressure and consequent reputational damage appears to be forcing the Government’s hand. The sense right now is that the scheme is all but finished.

“There’s an RIP sign over the ‘double Irish’,” says a business participant in the debate. Ministers appear to be drawing comfort from positive prospects on a line of new investment projects.

Any such move would be as part of a wider corporate tax package, which is likely to include some kind of a declaration that there is no threat whatever to the fundamental pro-business moorings of the Irish regime and the 12.5 per cent rate. There may be a move to expand research and development credits, something calibrated to compete with British measures. Income tax concessions for multinational executives may also overhauled; the current scheme never really took off.

A question lingers as to whether Kenny might take a sheet from Cameron’s book and introduce an Irish equivalent of his “patent box”. This, however, might be seen as as a move too far. The problem here is the threat of an EU investigation into the British system. An Irish move in that direction could expose the Government to further attack.

Thus far, the official position is the Government is in “wait-and-see” mode while awaiting formal guidance from the commission on “patent box” systems. There would, of course, be nothing to stop an express commitment to go down that road if EU approval is granted. Ministers know, however, that outgoing competition commissioner Joaquin Almunia has not ruled out further state-aid inquiries into tax arrangements. They might just leave well enough alone for now.