Employers groups unruffled by UK tax changes

There has been muted response to British government plans to increase significantly the rate of corporation tax paid by some British firms with operations in the Republic.

Employer's group IBEC dismissed the development as "nothing new", while the Small Firms Association (SFA) said legitimate British companies operating in the Republic had nothing to fear.

A spokesman for the Department of Finance said the majority of British-owned firms in the State would be "completely unaffected", adding he would be surprised if the Minister for Finance, Mr McCreevy, met his British counterpart, Mr Gordon Brown, to discuss the matter, as had been suggested.

IDA Ireland said is was studying the implications for firms operating in the State, but that it was too early to comment further.

From September 20th, British companies with Irish subsidiaries may see their rate of corporate tax increase substantially under the measures revealed last week by the Treasury department in Britain in a circular to British companies.

Changes introduced in the Irish Budget saw corporation tax reduced from 20 per cent to 16 per cent with a commitment to reducing it further to 12.5 per cent by 2003. But in the UK the rate is 30 per cent so the British government now wants UK firms with operations in the State to make up the difference in both countries' rates. It would effectively mean the companies would pay 12.5 per cent tax in the Republic and then pay a further 17.5 per cent to the British government, increasing the total tax paid to 30 per cent.

Companies will only escape the rate hike if they win UK Inland Revenue exemption. Fears had been raised that the new rules might adversely affect the State's attractiveness as a base for British firms and even lead the way for other countries such as the US to bring in similar laws.

But IBEC chief economist Mr Aebhric McGibney said those fears were unfounded and described the move as "a storm in a teacup". He insisted British firms with legitimate operations here had nothing to fear and would not be affected by the higher tax rates. The legislation was "years old" and was aimed at British companies who set up an Irish operation as a front through which to benefit from our low rates, he said.

The issue has only arisen now because Irish rates are to be reduced to below two-thirds of Britain's rate and, when that happens, existing British legislation kicks in and companies are charged the higher rate by Britain's inland revenue, he said. He added IBEC was not concerned that other countries such as the US would follow suit because they already had similar legislation on their statute books.

"It's merely a tax-avoidance test. If companies are carrying out legitimate trading activity here then have nothing to fear. . . there is no threat to jobs or investment in Ireland," he said.

Similarly Mr Pat Delaney, SFA director, said his organisation did not see the higher rates of tax as a threat to the Republic. He said it was clear under the Nice Treaty that tax harmonisation would not happen. As long as companies operating here could demonstrate they were as active in the Republic as they claimed to be then they would not be affected, he said.