Budget2011: Northern Irish corporation tax a "mistake"

A POTENTIAL separate corporation tax for Northern Ireland is a mistake, Deloitte’s head of tax has said.

The government has said it will publish a consultation paper tomorrow on devolving corporation tax in Northern Ireland. This is to “deal with the unique issues posed by the Irish Republic’s business tax regime”, chancellor George Osborne said.

But Bill Dodwell said that this is unlikely to help Northern Ireland’s economy. “The reason Ireland has been successful has been purely because it has managed to entice US multinationals,” he said. “US multinationals pay 40% of the whole of Ireland’s corporation tax revenue. There is nothing to suggest there is an equivalent investor base out there that will move to NI from a third country.

“The likelihood is you will divert from the rest of the UK,” he added.
European Union regulations state that tax losses incurred through a region having a separate corporation tax will have to be paid for by that region.

This could result in a lower grant for Northern Ireland, which would effectively mean the man in the street paying for a tax cut for businesses, he added.

Furthermore, the problem of transfer pricing from the UK will only be resolved “with great difficulty”.

However, Kevin Hindley, managing director of Alvarez & Marsal, said that this was an “excellent idea”.

“At the moment, Northern Ireland loses out on inward investment due to the very attractive tax regime south of the border. A move to bring the corporation tax rate in Northern Ireland more in line with the Republic (currently 12.5%) is clearly needed. I have clients in Northern Ireland that feel the pressures that come from the differential in the Republic,” he said.

This will not be entirely straightforward, he added. “Companies operating in both Britain and Northern Ireland would presumably need to allocate profits between the mainland and the province. It is helpful that a period of consultation is envisaged in order to assist with these issues.”

Mike Warburton, tax partner at Grant Thornton, welcomed the move. “Northern Ireland suffers from corporate tax regime in the Republic. There is a case to be made for a separate tax regime,” he said.