Corporation Tax in Northern Ireland - Northern Ireland Affairs Committee Contents

Supplementary written evidence from Eamonn Donaghy, NIERG

The EU legislation is the EU Treaty and specifically TITLE VI COMMON RULES ON COMPETITION, TAXATION AND APPROXIMATION OF LAWS CHAPTER 1 RULES ON COMPETITION (SECTION 1RULES APPLYING TO UNDERTAKINGS and SECTION 2 AIDS GRANTED BY STATES). In effect, it would not be permissible to reduce the corporate tax rate for one industry or commercial sector and not for all other sectors as this could be deemed to be a state aid for that sector. Thus the tax rate would have to be reduced for all sectors of industry. In relation to the distinction between trading and non trading profits, this is based on the fact that UK tax law already distinguishes between profits from trading activities (ie buying and selling goods or services) and profits from non trading activities (ie receipt of interest or receipt of rents). Indeed in Ireland, a company's profits from trading activities are taxed at 12.5% but its non trading profits are taxed at 25%. The objective of taxing trading profits at 12.5% is that trading companies tend to employ people whereas non trading companies do not tend to employ people. Thus lower taxes for trading companies should encourage employment growth.

3 November 2010

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