CHANGES TO British corporation tax rules, designed to re-attract companies that moved their headquarters to Ireland and other countries, have not caused the Department of Finance “undue concern”, sources indicated yesterday.
In the UK budget, chancellor of the exchequer George Osborne cut corporation taxes by more than expected but, more significantly, made major changes to tax rules on foreign subsidiaries.
Martin Sorrell, chief executive of advertising firm WPP, which moved its tax base to Ireland in 2008, said he was ready to return to the UK in 2012, while business publisher United Business Media, which came at the same time, said it was “actively considering it”.
Shire Pharmaceuticals, which also transferred in 2008, was more cautious, saying: “We will look into the details of these interesting proposals but at this stage our position remains unchanged.”
Questioned about the implications of the British move, the Department of Finance said: “Given Ireland’s stance on taxation being a national competency, we will not be commenting on the UK’s taxation proposals.
“Also, Ireland has consistently stated that we do not encourage the establishment of so-called ‘brass plate’ operations which seek to simply avail of our low corporate tax rate. We want to see real substance in investment in Ireland, specifically the creation of jobs. For this reason, while our corporation tax rate on trading activity is 12½ per cent, our corporation tax rate on passive income (where profits derive from a rental property, limited partnership or other enterprise in which a company is not directly involved) is 25 per cent,” said a spokesman.
Defending his decision in 2008 to move tax headquarters to Dublin, Mr Sorrell said WPP, which has never employed more than eight people at its Dublin operation, would save up to £70 million a year.
Since then, its Dublin operation has paid the 25 per cent rate – and not the lower 12.5 per cent figure, since it does not trade in Ireland, but it is not known how much a departure now will cost the Revenue Commissioners in taxes.
The Osborne changes could have some political benefits for Ireland, since the existence of “brass-plate” operations has been used as a stick to beat us with by EU states determined to see Ireland increase its corporation tax.
Ibec chief economist Fergal O’Brien doubted many UK companies that relocated to Ireland would be “rushing back to Britain”, saying some were waiting to “see what Ireland in turn can still offer them”.
While much of the attention on Wednesday was focused on Mr Osborne’s decision to cut corporation taxes by two percentage points, and not just the one point expected, and to 23 per cent by 2014, his changes to controlling foreign company (CFC) rules are far more significant.
The Labour government had come down hard on British-registered multinationals which used wholly owned financing companies based in low-tax countries to make loans to their operations in high-tax states.
Until now, the British CFC regime required firms controlled from the UK but resident overseas and subject to lower rates of taxation to make up any tax shortfall to Revenue and Customs.
Offering generous concessions, Mr Osborne decided to charge a flat 5.75 per cent tax on the profits of these offshore companies, with a three-year waiver for all taxes due if they repatriate headquarters to London.
David Norton, senior tax partner at Deloitte, said the changes to CFC rules were an acknowledgement the Labour government had “swung too far in seeing any offshore companies as vehicles for tax avoidance”.
