Northern Ireland: possible corporation tax reduction?

Lisa Kerr

With all of the focus on next month’s devolution vote in Scotland, it is easy to overlook reports this week suggesting that Northern Ireland’s parliament is likely to be given corporation tax rate setting powers.

The debate on whether such a move is desirable and/or compliant with EU law has been rumbling for years. It seems that proponents may finally have won.

With an immediate neighbour offering one of the most advantageous corporation tax regimes in Europe, Northern Ireland has struggled to attract foreign investment.

The hope is that a reduction in the corporation tax rate (presumably to 12.5%) will help level the playing field, encouraging investment and growth.  If successful then it will ease the pressure on a local economy heavily dependent on the public sector.  Sceptics are concerned that a reduction in the tax rate, in itself, is not enough to achieve those aims and that it will come at too great a cost (in the form of a significant cut to the region’s block grant).

The intention is that only economic activities carried out in Northern Ireland will benefit from the reduced rate.  Companies operating in Northern Ireland and elsewhere will be required to apportion their profits.  Additional anti-avoidance measures might be required to prevent profit-shifting to Northern Ireland.

David Cameron publicly parked the issue until after the Scottish referendum.  However, an announcement (and, it seems likely, a positive announcement) is now expected no later than October.

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