Examination of Witnesses (Questions 55-81)
Q55 Chair: Thank
you for being with us. I think you heard all the previous evidence.
Would you like to perhaps introduce yourselves and tell us a
little bit about what you do and maybe comment on what you have
heard so far?
Brendan Morris:
My name is Brendan Morris. I am the Chairman of the Northern
Ireland branch of the Chartered Institute of Taxation. I represent
a body of about 250 tax professionals working largely in private
practice across Northern Ireland. Our branch then feeds into
a UK network; we are one branch out of 30-plus branches across
the UK. It is an entirely voluntary post; I also work for myself—I
am self-employed—in private practice. It was our branch
that surveyed our members; together with the assistance of my
colleague here, John Whiting, at Head Office, we constructed a
survey and collated the results of that survey to form the basis
of the submission to this Committee.
John Whiting: I
am John Whiting. I am Tax Policy Director at the Chartered Institute
of Taxation. I have various other roles, including being involved
with the Calman Implementation Group in Scotland. As Brendan
has alluded to, the Chartered Institute of Taxation is the premier
body for tax advisers; I usually say that all good tax anoraks
are members of it. We have mainly members in practice, but we
have members working in industry and indeed in HMRC, the Treasury
and indeed two Members of the House of Commons are members. As
well as a members' body, we are constituted as a charity, which
does keep our minds focused. So we are far from just a lobby
group; anything but. We really exist to try to campaign for a
better tax system and we pride ourselves on our independence and
indeed our charitable activities such as our Low Incomes Tax Reform
Group.
Chair: Thank you.
Martin Fleetwood:
I am Martin Fleetwood. I am a Tax Partner with PricewaterhouseCoopers
in Belfast and I specialise in corporation tax. I advise a number
of private sector businesses in Northern Ireland, both indigenous
ownermanaged and also foreign direct investment and I am
definitely what John just referred to as a "tax anorak",
I am afraid.
Q56 Chair: Thank
you. Would you like to make any comments on what you have heard
so far and then we will ask a few questions?
John Whiting: One
immediate comment strikes me, if I may, Chair, and that is regarding
the comments about the lower rates of corporation tax. We have,
of course, experimented with a lower rate of corporation tax in
the UK generally in recent years and one thing that that did lead
to is quite a drive of sole traders to form companies on their
own and to distort the decision for the smallest businesses whether
they should practice as a sole trader, unincorporated, or through
a limited company. Now of course, that was really given fuel
when we had a zero rate of corporation tax for the first £10,000
of profits. I just mention it as another factor that perhaps
needs to be borne in mind because an awful lot of small businesses
practice as unincorporated; to reduce the rate of corporation
tax does not of course benefit them on the surface.
Q57 Chair: Okay. Any
other comments?
Martin Fleetwood:
I am here representing PwC. We are not here to lobby for or against
a lower corporation tax rate in Northern Ireland. As advisers
to a large number of private sector organisations in Northern
Ireland, what we want to do is encourage and stimulate a debate
about corporation tax and maybe wider fiscal measures that may
be made available to the Assembly.
Q58 Chair: Okay. Mr
Morris?
Brendan Morris:
Again, just to confirm what both John and Martin have said, the
Chartered Institute of Tax in Northern Ireland is neutral in this
debate. We are here to facilitate. We have collated our views
in terms of the submission report to date, so we are glad to be
able to assist the Committee as best we can.
Chair: Okay, thank you
very much. Mr Stride.
Q59 Mel Stride: Yes,
well welcome. I think it is fair to say that your submission
has been less enthusiastic than some of the others we have received
about the prospect of a lower tax rate in Northern Ireland. I
just wondered whether you would disagree with a statement from
the Northern Ireland Economic Reform Group, which said, "The
only means we know of comprehensively changing the economic environment
within a timescale of years rather than decades is to reduce the
corporation tax rate." Would you disagree with that statement?
Martin Fleetwood:
I think we remain unconvinced that a reduction in the corporation
tax rate is the panacea for the significant problems that Northern
Ireland experiences. Foreign direct investment has become a lot
more sophisticated in recent years; there is a lot more competition
in the foreign direct investment market. There are new entrants,
such as India, China and Puerto Rico, and that raises questions
in our minds about whether the experience of other countries,
such as the Republic of Ireland, can be replicated in Northern
Ireland using purely corporation tax as a single, some might say
blunt, tool.
John Whiting: To
me, corporation tax in many ways, as far as international business
is concerned, is your shop window; it is the thing that you put
up and say, "Low rates here"; it is just like the supermarket
tries to attract you by offering cheap baked beans, or whatever.
Having got that, of course, the supermarket tries to make its
money on everything else; you try to make your money as a country
on all the other taxes that investment generates, of which I am
sure the Committee is well aware. I think all countries have
got that message. Arguably the Republic of Ireland was ahead
of the game with that particular tactic. Some of the newer members
of the European Community—the Eastern European members—have
also got that message and tried lower corporation tax rates.
I do not see that a lower corporation tax is by any
means a bad thing, because of course it does mean you have the
rate up in the shop window. There is, however, an element of
it having been played by other people, and the question is whether
there are other things, such as lower employment taxes or just
looking at the general business atmosphere, that might sound a
bit louder in certain cases. I think when you talk to a lot of
businesses that are evaluating locations, one of the great things
they always cite is certainty. It has come out in discussions
about how long a low rate would subsist. If you can offer them
certainty, most of them will be able to factor in a higher rate,
and quite happily so, providing they know where they are and they
know how they are going to be for the years to come. So personally,
I would not say that a lower rate of corporation tax is a bad
thing; it is just that I think increasingly you have to look at—as
I think I heard Mr Paisley saying—whether this is the only
arrow in the quiver. I think these days, you have to look at
a number of arrows in the quiver and work out which might hit
the target best.
Q60 Mel Stride: Do
you accept that the rate in the Republic of 12.5% has been a major
contributor to its growth over the period of several years in
which its economy was growing very strongly?
John Whiting: Certainly
I see it as a significant contributor, yes. I think it has helped
them enormously in terms of the shop window effect; it has tempted
companies there and of course it has tempted companies to try
to exploit the rate, and we have seen various antiavoidance
measures and various cases taken to try to police the brass plating
that perhaps has gone on.
Brendan Morris:
I would go along with what John said. I would also say that in
the Republic of Ireland that almost belies the work that their
development agencies have undertaken. I think the IDA has been
particularly proactive in promoting Ireland as a location for
investment. It is interesting that presently the IDA no longer
promote the 12.5% as the headline rate; they promote other factors
for Ireland as a centre for investing in. So I do think it has
been significant.
Q61 Mel Stride: Are
we to some degree saying that there are a number of tax jurisdictions
that have gone down this route now and therefore we are looking
for other differentiators to attract people in? Is that something
of what you are saying?
John Whiting: I
think that is a factor that you have to bear in mind, yes. The
Republic of Ireland did not quite blaze the trail, but theirs
was quite a significant mark. Bear in mind that when they went
down to 12.5%, it was, as you heard earlier, in response to a
challenge from the European Court. The expectation was that,
under European pressure, they would raise the rate generally to
30%, say. In fact, they cut it quite dramatically and of course
led the way that one or two other countries have tried to follow—Estonia,
for one.
Martin Fleetwood:
The Irish experience says that the low rate of corporation tax
was one of a number of factors, including other things like a
very active and innovative investment agency, similar to Invest
NI, an understandable civil law background, good infrastructure
and the capitalisation of the cultural connections between the
Republic and the US. I think there were a number of factors that
they were able to draw together to create the economic boom experience.
Corporation tax was one of those factors and it was arguably
brand defining—the shop window—but we do not think
it was the sole factor, or perhaps the most important factor.
John Whiting: They
did manage to convince people that they were there for the long
term and this was a rate you could rely on; they gave the certainty.
Q62 Mel Stride: Another
quick question: Mr Fleetwood, in PwC's evidence, you suggest that
corporation tax may be, "Sufficiently unwieldy to form a
single, central focus around which a subregional economic
development strategy may be hung." I just wondered what
you meant exactly by that?
Martin Fleetwood:
I think this is the sophistication point, in that the other centres
that are looking to attract FDI have become increasingly sophisticated
and will continue to do so. You need more than one arrow in your
quiver; the more arrows you have, the better. There are a number
of nonfiscal and fiscal measures that a country wishing
to increase its share of the FDI market may wish to consider exploring.
In the fiscal area, it might be areas around, say, enhanced research
and development tax relief, special regimes for intellectual property
generation. We heard Jeremy Fitch mention Invest's focus on the
media, so perhaps wider incentives around media. All of those
are examples of the types of tax relief that maybe there should
be a debate about.
Q63 Mel Stride: All
packaged within an Enterprise Zone concept; with that angle to
it?
Martin Fleetwood:
Perhaps. Again, that would be another one of those potential
measures.
Mel Stride: Thank you.
Chair: Ian.
Q64 Ian Paisley:
I think the point is, however, that without a change in corporation
tax, Northern Ireland plc has been able to attract New York Stock
Exchange to Belfast over Zurich, the Republic of Ireland and London.
It was able last week to attract 63 new jobs to Newry that are
in the high-end financial services sector, and other things like
that, without this boost of corporation tax, which is incredible
given all the potential downside that we hear. Is the point not
what more could we do if we had this as well as all of these other
things? I dare not think like this, but would we be in the luxurious
position where we could actually turn people away and be very
choosy about who we wanted to come and invest in Northern Ireland?
Martin Fleetwood:
Potentially, yes. Again, going back to my earlier point, if the
debate is broadened out to not just simply consideration of the
corporation tax rate but also other fiscal measures that may be
available to the Assembly, and if there can be a healthy and robust
debate about what that might look like if it were possible, could
it be possible and what might the benefits be, then that potentially
goes further down the line that you were talking about, Mr Paisley.
Ian Paisley: Thank you.
Chair: On this point,
yes?
David Simpson: Well, my
question is tied into this.
Q65 Chair: Well,
just before we leave, we have heard one or two suggestions that,
in order to create jobs and boost exports, certain companies might
be entitled to have a lower rate of corporation tax. I would
just like your view on it. Could that work? It is bad enough
different parts of the United Kingdom having different corporation
tax rates, but could it work where you have different companies
with lower rates depending on what they do and how much they create
jobs, or would that be too complicated?
John Whiting: There
are some possibilities, but generally, European rules say "all
the same". The one precedent I suppose we have in the UK
as a whole is the differential rate for oil companies within the
ring fence in the North sea; possibly that is a precedent. I
heard some of the discussions about differential rates for utilities
or banks. I do not think that is on. The current discussions
about the banking levy are that it would be a separate tax, rather
than anything else, although again I know there are some subsidiary
discussions going on about, "Well could the banks emulate
the oil companies and have a sector-specific higher rate of corporation
tax?" I think there are some possibilities, but of course
you do then run into challenges. Among other things, how do you
define the particular type of company that qualifies for it?
Q66 Chair: The
examples you have given are where there have been increased taxes
applied, such as oil, banks and utilities; what I am saying would
be in reverse—
John Whiting: Indeed.
Chair: Which is where
state aid questions would come in. Is that correct?
John Whiting: Yes,
I believe it is.
Chair: Okay, thank you.
David Simpson.
Q67 David Simpson: I
believe that if taxation powers were to be handed to Northern
Ireland at no cost, it would happen fairly quickly. But there
is a substantial cost to all of this, and that is the undercurrent
of it all. Obviously I would like to hear your views in relation
to the block grant, because if it cost £400 million
or £200 million—whatever the figure may be—that
would come off the block grant for Northern Ireland and it would
be up to the Executive to use whatever powers it has in taxation
to make that deficit up. Also, Martin, you mentioned on Ian's
point that taxation alone would not be the panacea; it possibly
would take other fiscal measures or incentives. Could you elaborate
a wee bit on that; on what you possibly believe they could be?
Martin Fleetwood:
On the first question, it is embedded within the Azores judgment
that if a region is granted the power to vary its taxation regime,
the cost of that variation is borne by that region. So yes, the
quid pro quo of a reduced rate of corporation tax, for example,
is a reduction in the block grant. So there then has to be a
discussion, a debate and a consensus formed around whether the
incremental benefits outweigh the cost of that block grant reduction,
those incremental benefits being increased VAT, increased payroll
taxes and national insurance, increased rates through increased
usage of property. All of those things would need to be brought
into effectively a very complex financial equation. That would
be a brave decision.
Q68 David Simpson: It
would not be very popular under the current economic climate.
Martin Fleetwood:
Well I think that is probably more of an economic question, which
is to do with how effective those measures would be at creating
valuable jobs at the medium or upper end of the income scale,
because the people who benefited from that would benefit the economy
of Northern Ireland. On your second question, what could the
additional incentives look like? Well they could look like an
enhanced form of R and D tax relief, for example. There is currently
an R and D tax relief regime embedded within the UK tax law; that
could be used as a model and enhanced for Northern Ireland. I
believe that would be consistent with Invest NI's policies of
focusing on value-added, innovative, IP-focused and -led industries.
Tax reliefs for patents, for the generation of intellectual property;
Enterprise Zones, whatever they might look like; tax relief for
capital expenditure, which is what the classic Enterprise Zone
model was 20 years ago. There are a variety of things that, given
time and given debate, people could consider and conclude whether
they would be truly, significantly beneficial or would end up
being of marginal benefit.
David Simpson: Thank you.
Q69 Ian Paisley: Those
things that you suggested, Martin—R and D; tax relief; capital
expenditure relief; Enterprise Zones, whatever that means; tax
relief on patents—do not have the same "Va va voom"
or the same bang for your buck as, "Corporation tax: lowest
in Europe". That can always get you in a number of doors
and attracts a number of people's attention because you are grabbing
them right by their wallet. Would you agree?
Martin Fleetwood:
That is the "brand-defining" question, isn't it? I
think it is probably beholden upon all of us in Northern Ireland
who work with the private sector to think of an alternative simple,
coherent message other than, "Lowest corporation tax rate
in Europe".
John Whiting: Yes.
I would echo everything that Martin is saying. I completely
empathise with the fact that it is back to my shop window; if
you can put in the shop window "Lowest corporation tax"
or "Very low corporation tax here", then that is a very
easily assimilated message and it opens the door to the dialogue
that then allows you to talk about all the other attractions.
Can I just come back with a little point on Mr Simpson's question?
You talk about the cost and obviously the biggest issue is the
block grant; Martin has dealt with that. I am sure you appreciate
it, but I have to just point out that if there is a differential
corporation tax rate within the UK, there is an extra administrative
burden that must not be forgotten about for the tax authority
and also, of course, for the companies that may have to manage
it. It may not be very large, but it must not be lost sight of.
Chair: I think we want
to come on to that in a moment. Can I just bring Mr Stride in
here?
Q70 Mel Stride: A
very quick question has been rumbling around in my head here:
you are talking about a lower rate being like the cheap baked
beans in the shop window that bring people in—a loss leader
idea—the implication being that there are therefore other
ways in which you will make this money from these companies.
In respect of the Republic of Ireland, is it doing things that
effectively mean that the tax differential between its headline
corporation rate and ours is not as great as would immediately
become apparent from looking at it?
John Whiting: It
is not so much that it, for example, alters the calculation of
taxable profits to claw back something. What I mean more is that
they accept that they might, as it were, lose on the corporation
tax baked beans, but then they are going to make a lot of money
on the employment taxes; to us, PAYE, national insurance, of course
VAT and all the other taxes. When you look at the actual contribution
that a business makes, on one estimate, about 90% of the tax take,
certainly within the UK, flows through businesses. So there is
quite an argument, and some economists will push it, that corporation
tax is your loss leader; anything you get is almost a bonus and
you make your real money on all the other taxes.
Q71 Mel Stride: Are
the payroll taxes and sales taxes and other things associated
with these businesses comparable between the UK and the Republic
of Ireland?
John Whiting: I
believe so. They are similar. Of course, we must not forget
to look at other countries—for example, Belgium or France—where
they legendarily collect much more via payroll taxes, so they
manage to keep their corporation tax rates reasonable. The penalty
is much, much higher payroll taxes—national insurance, to
us. What has that led to? A certain amount of movement of employment
companies into south-east England.
Martin Fleetwood:
Can I come back on that last question, if I may? If you are comparing
payroll taxes in the UK with the Republic of Ireland—just
putting to one side the 50% rate of tax, which does not impact
upon a huge number of people—then the total payroll and
social security burden paid by your average Irish employee is
greater than that paid by a UK employee. So the payroll taxes
are more onerous in the Republic.
Brendan Morris:
That is set to rise now, as well; the Republic of Ireland has
a budget coming out in December time, and it is anticipated that
there are going to be further income tax rises.
Chair: Sorry, just two
more on this one and then I will come to—
Q72 Oliver Colvile: You
made a very interesting point about Belgium and France and how
that produced a lot of activity in south-east England. I am an
English Member of Parliament; I am delighted to be part of the
Westminster Parliament, which is obviously part of the United
Kingdom. What kind of impact do you think this measure might have
on the English economy and my region down in Devon?
John Whiting: Clearly,
if there is a low rate of corporation tax on offer in Northern
Ireland, it might take marginal investment away from the rest
of the UK. It is a location decision and any company looking to
locate weighs up a lot of factors. Go back to the Republic's decision,
one of the drivers for them was to offer companies clear compensation
for the extra transport costs that they perhaps suffered by being
further out from the rest of Europe. Northern Ireland might look
at it that way, whereas Devon might say that, "We are closer,
so we do not need to offer such a low rate."
Gavin Williamson: Closer
to Cornwall.
John Whiting: Well,
that is another issue.
Chair: Thank you. Mr
Williamson?
Q73 Gavin Williamson: I
think you made a very interesting point about the cost of employment
in terms of to the employee. I probably was not paying enough
attention, but how does the UK compare with the Republic of Ireland
for the employer in terms of cost? Is it more?
Martin Fleetwood:
Well employers' social security costs; that is—
Gavin Williamson: It is
a bit unfair; I realise you are not a tax expert on the Republic
of Ireland.
Martin Fleetwood:
Republic of Ireland payroll tax is a little bit out of my field
of expertise, I am afraid.
Gavin Williamson:
Yes.
John Whiting:
I think it is marginally higher.
Gavin Williamson:
Right. That is obviously a very big cost
and as you were saying about the baked beans and whether that
does have an effect on companies.
Mel Stride: Chairman,
could I just ask whether it might be useful for the Committee
to solicit from whoever we solicit these things some kind of comparison
between the Republic of Ireland's corporate tax regime and the
UK's tax regime at the moment, with all these various costs?
Chair:
I am sure we can fit that into the inquiry somewhere, yes.
Mel Stride:
Would that be all right?
Chair: Certainly.
Mel Stride:
Thank you.
Chair: Right, Naomi.
We got there in the end.
Q74 Naomi Long: Thank
you. You mentioned in speaking to one of the other Members' questions
about the additional costs of administration if there is a variation
in tax. Now, I think it has been established that the loss of
revenue, if you like, would come off the block grant, so if tax
were not being raised, we would have to compensate. Where would
we see the administrative cost? Would that also have to fall
on the Northern Ireland block grant or would that be subsumed
into the wider budget for collective taxation?
John Whiting: It
is a very good question and I can say it is exercising the Scottish
Parliament at the moment in respect of Calman. The working assumption
is that the extra costs would, in terms of the Scottish changes,
fall on Scotland. So I think, one way or another, the extra costs
would fall on Northern Ireland. I would just put one important
caveat to that. There are of course two areas of costs. There
is, as it were, the overt cost of the tax authority, HMRC Northern
Ireland branch. That can be seen; that is very visible and maybe
that would have to be for Northern Ireland. There are the covert
and more hidden costs, which is the company that has to calculate
it and that has to carry out some extra calculations and has to
perhaps go through extra routines; maybe has to do an extra return.
I suspect that would have to be seen as a cost to the company
and of course it would be a negative; only a tiny one in the great
scheme of things, but the extra bureaucracy would be a negative.
Of course, one of the things I think you would have to think
about in any move to this lower rate is to keep it as simple as
possible and to get quite pragmatic, perhaps, in terms of what
returns the company that had activities across the whole of the
UK had to do so it did not, for example, have to do endless schedules
proving to the pound how much was and was not done in Northern
Ireland versus the rest of the UK.
Q75 Naomi Long: Judging
by your answer, you seem to be implying that this could still
be done by the same tax collection bodies that we already have;
that it would not require the establishment of a separate collection
body. Would that be correct?
John Whiting: That
would be my opinion, yes. I do not know whether—
Brendan Morris:
Yes, I would agree with that as well. We are building upon fundamental
UK principles in terms of computing tax liabilities. I do not
see any requirement to deviate significantly from that.
Q76 Naomi Long: Have
you any idea or estimate of what the cost of that might be? Would
it depend very much on what the setup was in terms of how it is
actually done, or would there be some way of estimating the cost
of that in advance?
John Whiting: I
suspect if you asked HM Revenue and Customs, it might be able
to give you an estimate, but much would depend on what I alluded
to, which is whether you are basically going to allow the company
to do a fairly simple, rough and ready calculation and, of course,
how much policing you want to do. Back to the earlier discussions
on brass plating and potentially transfer pricing, it might, for
example, be down to the Northern Ireland Authority to hire some
extra tax inspectors to look at transfer pricing and perhaps bear
the cost of those.
Naomi Long: Thank you.
Martin Fleetwood:
Could I make just one comment on that? This may or may not be
helpful, but we have very recently introduced in the UK a sort
of subregional differential tax regime, in that we have
a national insurance holiday at a limited level for new businesses
taking on the first 10 employees. That operates for businesses
in the North and West of the country. It is possible that somebody
may have done some calculations somewhere about what the administrative
cost of running that would be.
Q77 Naomi Long: It
might be helpful for us to have those. Just one other question.
We have established, obviously, that there is a cost in terms
of the block grant. Do you believe that there are also wider
implications for the application of the Barnett formula in the
longer term if we have tax varying powers devolved to Northern
Ireland as well?
Martin Fleetwood:
I think that is certainly outside my field of expertise, I am
afraid.
John Whiting:
I think it goes further than I know of the Barnett formula.
Chair: It is a slightly
political question, but—
John Whiting: Yes.
All I can say is that in my experience of the Barnett formula,
including appearing before Lord Barnett as he tried to explain
it to me, it is involved. I would imagine that if Northern Ireland
has its powers, then it would want to look a little at how the
moneys are allocated.
Chair: Maybe slightly
linked to that, Mr Benton, you want to come in.
Q78 Mr Joe Benton: I
was going to ask a question about whether you envisage a differential
rate across Scotland, Wales, Belfast, England and how that would
fall into line, particularly with the chartered institute, in
wanting a more simplified tax system. It is obviously going to
create problems, some of which my colleague previously referred
to about admin costs and all the rest of it. I am sure there
might be further ramifications in the sense of trying to simplify
the system. I would appreciate any observations on that. Another
question I would like observations on—I do not know whether
you would have figures to back it up— it would be interesting
to know how many companies, for example, moved from Northern Ireland
to the Republic of Ireland through inducement by the lower rate
of corporation tax. If you had any figures on that, I would appreciate
it.
John Whiting: Perhaps
I can start with the split rates, Mr Benton. Obviously, if there
are split rates in a number of regions around the UK, you add
complexity. As a body, we would argue against it unless it had
been carefully thought through and the implications taken into
account and, in a sense, you made sure that you were going to
get value for money out of it. I admit I have another hat, which
is I am the Director of the Office of Tax Simplification as well.
Naturally, one of our aims is to try to simplify the system.
That said, I am under no illusions that we can have a truly simple
system in the UK; we live in a complex society. But, I go back
to it, if we are going to introduce differentials and changes,
let us at least make sure we have evaluated the cost and the benefit,
and tried to do that change in as simple a way as possible. I
will leave my colleagues to comment further on that and the Northern
Ireland/Republic point.
Brendan Morris:
Yes, well it essentially goes back to the principles established
in the Azores case that each region has to have its own authority
to make that decision: whether it wants to devolve tax powers
and wants to choose to possibly reduce the tax rate. In terms
of companies moving from Northern Ireland to the Republic of Ireland,
I am not aware of any statistics or numbers on that. I think
it might be very difficult to try to get numbers around that.
Q79 Mr Joe Benton: If
I can just say that the purpose behind that question, of course,
is it poses a question on the future for whoever has to make the
decision whether this reduction be made or not. If you have no
indices as to what will be the benefits of having a reduced rate,
it makes the decision all the more difficult and harder, because
you have to feel reasonably confident that this would be a successful
venture and a successful thing to do. All the problems that have
been posed, which have been mentioned all afternoon, about would
it merely attract business from one depressed area to another
throughout the UK; all these factors have to be considered. So
I think the impetus and the prime objective in all this has to
be how successful has a reduced corporation tax been in terms
of attracting inward investment or outward investment; that is
the crucial question and that is the drift behind my question.
If there were possibly figures available, for example,
to say what was actually attracted into southern Ireland by a
12.5% corporation tax as opposed to—the nearest one I can
think of is Northern Ireland. I am in no shape or form a businessman,
but it seems logical to me that if I had a business in Northern
Ireland and I could open up an hour's drive away, it would be
a big attraction to have 18.5% of my tax saved. So the drift
from Northern Ireland to southern Ireland, I would suggest, is
very important in terms of determining how successful it would
be.
John Whiting: I
suspect the main impact has been on foreign direct investment
into the Republic, which has perhaps gone to the Republic rather
than Northern Ireland or Devon or anywhere else in the UK, rather
than drift south of the border.
Chair: Naomi, do you want
to come in?
Naomi Long:
My question has been answered.
Chair:
Oh, you don't; it's been answered. Right, I think probably the
final area is transfer pricing. Mr Stride.
Q80 Mel Stride: Yes.
I think actually, Chairman, most of the brass plating questions
I had have been answered.
Chair: Do you want to
ask the last one?
Mel Stride:
Yes, I can ask the last one. Do you think
that the overall tax regime in the Republic is less strict in
areas like transfer pricing than elsewhere?
Martin Fleetwood:
Is less—
Mel Stride:
Less strict in terms of approach to transfer
pricing.
Martin Fleetwood:
Well I suppose there is part of it that says that seeing as they
have a low corporation tax rate, they would not need to put the
same emphasis on transfer pricing as other Western economies with
higher corporation tax rates. Transfer pricing is essentially
around defending your own tax base, so the dynamic for the UK
or the US or Canada or whoever for their transfer pricing legislation
would be very different to that for the Republic.
John Whiting: Yes,
I would echo that; they have less to defend. If I can come back
just with a further comment on the brass plating issue, clearly
the UK has defences at the moment with the Controlled Foreign
Company regime and we have seen that applied quite vigorously
to some of the attempted moves to Dublin with the Vodafone case
and the Cadbury case. That has led to some changes in our own
rules and some more changes are to come. There is a wider discussion
going on, which may be relevant to your consideration, as to whether
the UK generally should move to a more territorial basis of taxation
and really try to focus on exactly what activity goes on in the
UK or potentially within Northern Ireland. So there are quite
a number of currents going on. That is partly in response to
transfer pricing being a very time-consuming and complex exercise.
The UK is quite vigorous at trying to apply it, but it is a complex
and difficult thing that can drag on for many, many years.
Q81 Mel Stride: If
HMRC were to be the body responsible for that aspect in the event
of a reduction in tax in Northern Ireland, do you think they would
have the resources and the capability at the moment to do an effective
job there, or do you think they need a lot more specialists?
John Whiting: Perhaps
that is a question you would best put to HMRC, who of course are
looking at significant budget reductions. I did ask the Chief
Executive last week as to the latest round and whether Calman
and similar possibilities were factored into the HMRC plans.
I understand Calman is factored in; I do not think any discussions
in Northern Ireland are factored in. So I would suspect they
would say that they would have to have extra resources. I come
back to Ms Long's question; potentially you could see them have
to take on extra resources to manage the Northern Ireland differential
rates and police it adequately.
Chair:
Okay, we have had three long evidence sessions this afternoon.
Can I thank everybody for their endurance and their patience,
in particular our three witnesses now. Thank you very much for
your evidence.
Brendan Morris:
Thank you.
John Whiting:
Thank you.
Martin Fleetwood:
Thank you.
Chair: The meeting is
closed.
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