Written evidence from the Ireland-U.S.
Council
This is a submission from The Ireland-U.S. Council
to encourage a reduction in the rate of corporation tax on companies
operating in Northern Ireland downwards to the 12.5% rate prevailing
in the Republic of Ireland.
This Council is a business organization that promotes
closer links between the United States and Ireland, North &
South. Since its inception, the Council has espoused the adoption
of economic policies that favour wealth-creation and economic
growth.
HISTORICAL BACKGROUND
At the time of its founding, it is worth recalling,
the Republic of Ireland was not a member of the European Union
(or the European Economic Community as it was then known).
Its corporate tax policies had evolved from a program
of business tax breaks first introduced in 1959, primarily aimed
at boosting exports, industrial output and employment. The growing
consensus among policymakers in Dublin was that the economic future,
whatever it might hold, must lie in open markets, deregulation,
freer trade and reduced Government involvement in business in
the economy.
This first program of tax incentives, called the
Export Profits Tax Relief Scheme, was simple. If 100% of output
was exported then 100% of any profits were free from any form
of corporate profits tax. The commitment to move to freer trading
occurred first with the Anglo-Irish Free Trade Agreement in 1965.
Ireland had already attempted but failed to gain entry into the
European Economic Community (EEC) in January 1963.
There was nonetheless a strong determination to reshape
the Irish economy in preparation for a world of freer trade. In
a classic paradox of trade policy, it was the desire to reduce
dependence on the British market that led Ireland once again to
seek closer ties with Britain. To prepare Ireland for the eventual
entry to the EEC to which it aspired, while expanding its markets
in Britain, trade talks with the British government resulted in
a July 1965 free-trade area agreement between the countries which
was signed into effect in December 1965. Its preamble placed its
roots firmly within the context of the principles and objectives
the General Agreement on Tariffs and Trade (GATT). It sought the
harmonious expansion of world trade through the removal of barriers,
and the continuing progress toward European economic cooperation.
For industry it was agreed that Britain would abolish
all import duties on Irish goods on 1 July 1966. On that same
date Ireland would cut import duties on all British goods by 10%—and
by another 10% each successive year until all industrial duties
eventually disappeared in 1975.
For agriculture the agreement allowed unrestricted,
duty-free access to the British market for Irish store cattle,
store sheep, and store lambs, while the Irish undertook to export
at least 638,000 head of cattle per annum. In respect of other
agricultural products it was agreed that access to the British
market would be related to international commodity agreements
involving all substantial producers.
This background is important, we believe, because
it illustrates the policy connections between taxation incentives
and broader Government actions affecting business. The strategy
in the Republic of Ireland was not just to offer corporations
a break on taxes. It was a thought-out and planned economic policy
to foster enterprise through an entire Government philosophy that
encourages business, minimizes restrictive rule-making, eases
permit approvals, limits bureaucratic barriers to business and
generally fosters a positive climate for investment. It is a strategy
that embraces a deep commitment to competition-keen free trade
with the rest of the world beyond the borders of the country.
TAX COMPETITION
Like it or not, tax competition is a fact of business
and political life. In the United States, there is considerable
competition between individual states for economic opportunity
and growth through shaping tax policies to attract businesses.
We believe today that Northern Ireland would benefit
enormously if the Corporation Tax for companies operating there
were cut to the 12.5% level prevailing in the Republic of Ireland.
This rate should be accompanied by generous write-off allowances
to underline the encouragement of business investment in Northern
Ireland.
The Council has consistently espoused such a policy
for Northern Ireland, most recently in 2007 when the Council wrote
to Sir David Varney during the most recent review of this matter.
The Corporation Tax rate in Northern Ireland is currently
28% and although it is scheduled to be further lowered, we believe
that the competitive tax disadvantage for Northern Ireland explains
the imbalance in heavy capital foreign direct investment inflows
to the Republic of Ireland. The tax cut initiative we encourage
will redress that imbalance and create a more-level playing field
in the campaigns to attract mobile international industrial investment
projects.
The Council is aware of the budget implications that
this lowered tax rate could imply. However, the experiences in
other countries and regions—not just in the Republic—clearly
show that the expanded economic activity over time as a direct
result of the lower tax rate creates strong exchequer inflows
of tax income from all sectors of the economy, not just from corporate
income tax.
In an editorial 4 October 2010, America's largest
newspaper, the Wall Street Journal commented on Ireland in this
way:
"Since 1995—even allowing for the recession,
which knocked nearly 10% off economic output—GDP per capita
has more than doubled in Ireland, to $41,000 from less than $18,000.
Since 1983, GDP per capita has quintupled. Also since the early
1980s, Ireland's employment rate has gone from about 50% of the
working-age population to between 60% and 70%. Ireland's brightest
young people no longer felt they had to flee to America.
In the wake of the financial panic and Ireland's
undeniable economic setbacks, it's become fashionable to dismiss
the former Celtic tiger as an economic mirage. But Ireland's progress
has been real and dramatic and remains a long way from being undone
by the events of the past two years.
As for that debt, Ireland's national debt as a
percentage of GDP fell to as low as 25% in 2006, largely as a
result of 15 years of strong growth, which was in turn largely
the result of a supply-side tax revolution starting in the 1990s.
The key to escape its current debt trap is a combination of spending
restraint and renewed economic growth.
Recovery will take time given the depth of the
damage to Ireland's financial system, but it will not be helped
by a return to the habits of the 1970s and 1980s, when taxes frequently
sucked up close to half of Ireland's output and the economy stagnated."
BACKGROUND ON
THE COUNCIL
The Ireland-U.S. Council is a business organization
that was founded in preparation for the visit of President John
F. Kennedy to Ireland in 1963, as a measure to build institutional
form around a structure to improve the relations between America
and Ireland. The Council's mission was aimed at building business
bonds between America and Ireland.
Currently, the Council has a membership roster of
450 companies based in the United States and in Ireland who are
engaged in transatlantic business connections between the island
of Ireland and America. The Council is headquartered in New York
City and operates an office in Dublin.
The Council was registered as a not-for-profit corporation
in the Fall of 1962 by a group of American and Irish business
executives led by John D.J. Moore, the American envoy to Ireland.
In those early years, Ireland was not a member of the European
Community. Thus, many of the Council's initiatives during the
1960's and early 1970's involved the bilateral relationship between
the United States and Ireland in economic, business and commercial
matters.
The Council's officers and representatives in those
days were heavily involved in various cases before the Federal
Trade Commission, committees of the Congress, the Federal Aviation
Administration and other Government agencies.
Since, Ireland became a member of the European Union
in 1973, the character and nature of the relationship between
the two countries has changed quite dramatically. The strict bilateralism
of the earlier decade has been replaced, on many issues, by Ireland's
interests being served on a pan-European level.
In pursuit of its aims, the Council hosts frequent
events in Ireland and in the United States. The Council also operates
a variety of scholarship and student internship programs, stages
occasional seminars and, from time to time, undertakes various
publishing initiatives in national business media in the United
States to promote closer commercial connections between Ireland
and America.
The Council seeks also to focus on activities that
will develop communications, dialogue and improved understanding
between leaders in business and government on both sides of the
Atlantic. There are many important arenas in which the economic
relations between the Emerald Isle and the United States continue
to attract the Council's involvement. These range from bilateral
taxation treaties to intellectual property accords, aviation agreements,
immigration issues and more.
The Council has hosted many trips to Northern Ireland.
Council delegations have visited every American industrial facility
there during the past three decades. Leaders from Northern Ireland's
Government and business community have addressed Council gatherings
in the United States.
26 October 2010
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