Post Brexit Britain will struggle to emulate Ireland’s corporate tax “brand”

George Osborne’s plans to reduce the UK corporate tax rate below 15 per cent is a clear statement of intent

Britain’s Chancellor of the Exchequer George Osborne. It is not clear that all elements of policy are currently aligned in the UK to credibly reinforce the brand envisaged by this deliberate policy decision. REUTERS/UK Parliament / AFP PHOTO / ADRIAN DENNIS

Britain’s Chancellor of the Exchequer George Osborne. It is not clear that all elements of policy are currently aligned in the UK to credibly reinforce the brand envisaged by this deliberate policy decision. REUTERS/UK Parliament / AFP PHOTO / ADRIAN DENNIS

 

To quote Jeff Bezos, founder of Amazon, “your brand is what other people say about you when you’re not in the room”.

Having worked in international tax for the best part of 30 years, it is clear to me that the Irish corporate tax rate has become an international foreign direct investment (FDI) brand in its own right; its certainty and transparency creating confidence among the world’s business community at a time of increasing economic and political uncertainty.

The rationale for the 12.5 per cent corporate tax rate is very simple. We have used a low tax regime for internationally-traded activities for more than 50 years as a cornerstone of our economy, and it has demonstrably worked. It has proved a vital tool in addressing the economic limitations that accompany being a smaller and peripheral EU state, and has resulted in Ireland being the number one global location for FDI per capita.

Successive Irish governments have recognised this, and have been very public in setting the retention of the low corporate tax rate as the absolute bedrock of Ireland’s corporate tax regime.

“Brand” is what drives a business and defines its difference and its reputation. Ireland’s strong and long-standing commitment to the 12.5 per cent rate is the most public and tangible demonstration of our efforts to attract inward investment. Critically, the overall tax policy environment in Ireland has, over many years, reinforced the low tax rate with consistency across other elements of Ireland’s FDI offering in the tax space such as the leading edge R&D regime, the intellectual property regime, the holding company regime, etc.

Ireland has a deserved reputation for providing a certain and stable tax environment from which businesses can operate. The Irish tax regime provides certainty, something which appears to be in short supply at the moment.

Statement of intent

However, it is not clear that all elements of policy are aligned in the UK to credibly reinforce the brand envisaged by this deliberate policy decision.

The announcement must be seen in the context of a very uncertain economic environment. I don’t believe that such an announcement would have been made if the Remain side had prevailed.

The logic must be that it was designed to offset the perceived and real drawbacks from the “exit” vote. Only time will tell whether this represents a real shift by the UK to create a permanent low corporate tax environment.

The proposed rate decrease is also not as dramatic as it might appear given that the UK government had already indicated the rate would reduce to 17 per cent by 2020. While this would have been welcomed by business, it was also accompanied by other, far less welcome, policy decisions such as the introduction of diverted profits tax – a unilateral move which has created much uncertainty for many international businesses operating in the UK.

Opportunities

Perhaps never before has the certainty of our FDI brand been more valuable. I don’t believe Ireland should engage in any knee-jerk reactions to this UK move. People shouldn’t doubt Ireland’s ability to make changes to our corporate tax offering, as we’ve done in the past, or our agility to do it quickly. But for now the stability and certainty, symbolised by the 20-year-old 12.5 per cent rate, is a real positive in a sea of uncertainty.

We are in a unique period of turbulence which will have negative overall implications for Ireland but also provides some real opportunities. Let’s hold our nerve and maximise those FDI opportunities that are out there.

Feargal O’Rourke is managing partner of PwC

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