Irish Corporation Tax and “No Deal” Brexit – A change in store?

12 Apr, 2019  Posted By Thenvi Subin   Posted in Tax
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Is Brexit likely to change all of this? A valid question that seems to be lingering in most minds.

In the light of Brexit, if Ireland is to remain attractive to multinational investment over the long term, it would need to maintain its sovereignty of corporation tax.

The challenges that face Ireland in the light of Brexit are many.

The push for a financial integration across the EU currently poses the greatest challenge for the country. Proposals for a common consolidated corporate tax base is being supported by France and Germany. But this could prove detrimental to Ireland costing it up to 50% or 5 billion euro of its current corporation tax revenue. It is also likely to significantly impact the appeal of the 12.5% headline rate.

If the UK significantly enhances its tax offering to increase inward investment through tax competition, it would amount to state aid. Although this is not allowed legally according to EU laws, it would no longer apply to the UK, making it very competitive for the Irish economy.

On the international front, the ability to avail of the Ireland/US double tax treaty will be somewhat curtailed under the limitation of benefits clause where an Irish company is ultimately owned by UK based EU residents. However, the policy makers internationally may see fit to add a protocol to the treaty to enable UK residents to benefit post-Brexit.

In a report published recently, the Parliamentary Budget Office (PBO) Quarterly Economic and Fiscal Commentary included a representation of the risks facing the Irish economy. “Having a tax base that consists of highly volatile revenue sources complicates prudential fiscal planning; more volatile revenues are harder to predict and this can result in substantial forecast errors, making it more difficult to plan future spending,” the report said.

Meanwhile, Dublin-based organization the Economic and Social Research Institute has warned that Brexit risks 80,000 Irish jobs.

Brexit’s economic impact on Ireland is likely to be significant in either a deal or no-deal scenario, with a cost to output of between €1.8bn and €7.5bn.

It estimated that 10 years after the UK leaving the EU with a deal, employment in Ireland would be some 45,000 lower than it would have been if the UK remained – and a disorderly no-deal would see that number almost double to around 80,000.

On the flip side, Ireland has a lot going for it as an investment haven. Ireland’s position as a leading export platform, in the wake of the global FDI competition, stands testimony to the country’s policymaking system. If UK does not gain access to the EU27 market, thanks to Brexit, Ireland will be an attractive option for UK agri-food SMEs to locate and operate from here in order to gain entrance to the European market.  Also being a part of double taxation treaties with 72 other countries, Ireland is definitely well positioned to face any adversity that the advent of Brexit brings along the way.






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