A budget decision by British Chancellor Rishi Sunak to raise the UK corporate tax rate to 25% to pay the heavy bills in the fight against Covid-19 is not a bonanza for Ireland and could even put pressure on the government to get it Maintaining Goes Business leaders and economists have warned of its competitiveness.
The hike was sharper than expected and means that the UK corporate income tax rate will now be exactly double the republic’s long-running tax rate of 12.5%.
The UK decision, though postponed and sweetened by other measures, marks the abrupt end to the global trend of major economies in recent decades to lower corporate taxes in order to create jobs and attract mobile investment from abroad.
It comes as President Joe Biden campaigned for the White House to reverse the US corporate tax cuts that his predecessor Donald Trump initiated only three years ago.
The British Chancellor’s decision is also noteworthy because many members of the British government, led by Boris Johnson, spoke out in favor of Brexit because it opened the door to corporate tax cuts and allegedly sparked an employment boom for the UK and its financial services industry.
Many commentators in Ireland had feared since the 2016 Brexit referendum that the creation of a Brexit low corporate tax regime popularly known as “Singapore on the Thames” would quickly undermine the attractiveness of Ireland’s competitive corporate tax regime.
Irish experts say the UK’s reversal shows the need to fund the huge cost of Covid, but that there will be little or no dividend for Ireland.
This could point to “short-term gain but long-term pain” for Ireland, said senior economist Jim Power, and is likely to focus more on the 12.5% rate here.
Ireland is already facing an upheaval in the global tax system as the European Commission, a number of the most powerful European countries, and now the US under President Biden, seek to improve the decades-old global tax system.
Critics have long attacked the Irish tax regime as “tax banditry”, claiming that it is effectively giving multinational corporations a free ride.
A process that is already underway and is being promoted by the Organization for Economic Co-operation and Development (OECD), supported by the Irish Government, is widely accepted as the Treasury will collect fewer corporate taxes over time % represent all Irish tax revenue.
Fergal O’Brien, director of politics and public affairs at Ibec group of companies, said it was clear that the global trend towards lowering corporate taxes had come to an end with the onset of the Covid-19 economic crisis.
“It is also clear that the US and the EU will work together through the OECD on this global minimum tax rate,” said O’Brien.
“Taken together, competing on the basis of very low tax rates will not be a sustainable strategy for us in the future,” he said.
Instead, Mr O’Brien assumes that the UK will focus on investing public funds in a small number of innovative areas and Ireland will have to follow suit.
“I think companies will be concerned with the long-term sustainability of their business and I don’t think we will see jerky moves with potential short-term benefits for Ireland” when they look at what is happening with global tax reform. Mr. O’Brien said.
Isme group of companies said the UK rate hike should make Ireland more attractive and competitive in the short term, but the OECD’s multinational tax reform measures were a bigger problem.
CEO Neil McDonnell said a higher corporate tax rate in the UK could put pressure on UK companies that are already struggling with Brexit and have a close trading relationship with Ireland to relocate their operations here.
However, he cautioned that the prospect that the UK public could also pay more taxes in the coming years could be reflected here.
Mr McDonnell said tax hikes in Ireland could be across the board “unless the government gets its current account spending under control”.
Ann McGregor, General Manager of the Northern Ireland Chamber of Commerce and Industry, welcomed “many aspects” of Mr. Sunak’s budget, “particularly the expansion of the vacation program, which will relieve companies under tremendous cash flow pressures.” Result of the pandemic “.
She also welcomed new business investment incentives.
Given the cost of Covid-19, “markets focused on how the Chancellor would pay for all of this,” said Dean Turner, an economist at UBS Global Wealth Management in London.
“The deferred corporate tax hike shouldn’t have come as a surprise, but the 25% increase is on the high end of expectations,” he said.
Savvas Savouri, chief economist at Toscafund in London, said those in the economy “whose heads went down when the Chancellor announced the corporate tax increase to 25% raised their heads and grinned at the hearing of super-deduction relief”.