Britain raises corporate tax to 25%; this may bring small gain but long-term losses for Ireland – experts warn
DUBLIN: The Britain has raised the corporation tax rate to 25%. Experts warn that this may bring small benefits to Ireland but long-term losses.
Britain raises corporation tax to 25% to 25%, citing COVID liabilities. Business leaders and economists point out that the decision will not only benefit Ireland, but will also put pressure on the government to maintain a competitive rate.
The corporation tax rate in the UK is now double that of the Republic. The long-term rate for the Republic is 12.5%.They also question whether the British decision marks a halt to the global trend of reducing business taxes as a way to increase employment and attract mobile investments from abroad.
Joe Biden had campaigned to reverse the US corporation tax cut introduced three years ago by his predecessor, Donald Trump.
The British government opened the door to a reduction in corporation taxes and its financial services industry, in particular. In Ireland, many commentators have feared that the introduction of a Brexit regime of low-corporation tax, popularly known as “Singapore-on-Thames”, would rapidly undermine the attractiveness of Ireland’s competitive corporation tax regime. But the reverse had happened.
Britain’s reverse decision points to the need to finance the heavy costs incurred by COVID-19. But experts say Ireland will not receive its dividends. This is a short-term achievement for Ireland. This is a “short-term gain, but long-term pain” for Ireland, said senior economist Jim Power.
Many powerful European countries, the European Commission and now US President Biden are trying to uplift the decades-old global tax system. As a result, Ireland is already facing a shake-up in the global tax regime.
Critics have long accused the Irish tax regime of being a “tax banditry” that provides free travel to multinational companies. The Organisation for Economic Cooperation and Development (OECD), which is backed by the Irish government, is already pushing for an increase in corporation taxes.
Fergal O’Brien, director of policy and public affairs at business group Ibec, said the global trend of corporate tax cuts was over as the COVID-19 financial crisis intensified.
“It is also clear that there will be co-operation between the US and the EU through the OECD on this minimum global effective tax rate. Taken together, competing on the basis of very low tax rates won’t be a sustainable strategy for us going forward,” he said. Mr. O’Brien points out that the UK will focus on investing public funds in innovative areas and therefore Ireland will have to follow suit.
“I think corporates are going to be looking at the long term sustainability of their business and I don’t think we will see knee-jerk moves of potential short term benefits,” Mr. O’Brien said.
Meanwhile, Business group Isme said the UK rate hike would make Ireland more attractive and competitive in the short term. But the OECD’s multinational tax reform measures are a major concern.
Its chief executive Neil McDonnell said the high corporate tax rate in the UK would put pressure on British companies already struggling because of Brexit. They may also seek to establish strong trade ties with Ireland.
He warned that this would reflect the possibility of the British people paying more taxes in the coming years. Mr. McDonnell said that tax rises would reach Ireland “unless the Government gets a grip on its current account spending”.
Ann McGregor, chief executive at the Northern Ireland Chamber of Commerce and Industry, welcomed “many aspects” of British chancellor Rishi Sunak’s budget.
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