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UK Corporation Tax rate decrease : implications for Ireland?


gerhard dengler

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Gideon Osborne has lowered the UK Corporation Tax rate to 21% (effective from March 2013).

Osborne Cuts Corporation Tax Rate to Boost U.K. Competitiveness - Bloomberg

Britain has now cut Corporation Tax rates from 26% to 24% and now to 21%.

Will this affect existing and more long term FDI to Ireland?
Will companies decide to locate (relocate) to a market which is closer to mainland Europe instead of Ireland?
 

ruserious

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Manufacturing jobs from FDI are on the way out anyway with the growth of developing countries. Simple economics. We need to change our competitive advantage to attract high-teck companies and to a degree we already are.
 

asset test

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CT should be reduced proportionately here in response to a lowering anywhere else in the EU.

It's the only weapon we have really now.
 

Boy M5

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Depends on the marginal benefit.
Remember alot of our FDI exports are high value and small ( or are sent electronically), so the extra transport costs per unit are small. The saved tax per (high value) unit is large.

Also makes the "tax haven" allegation harder to stick on us.
 

ManOfReason

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But but but.... we have a knowledge economy....don't we?....that should save us.
 

gerhard dengler

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CT should be reduced proportionately here in response to a lowering anywhere else in the EU.

It's the only weapon we have really now.
Britain has cut her CT rate by 5% in little more than 12 months.

I think Britain's move could well impact on foreign investment decision making with regard to comparing Ireland with Britain as an investment location.
 

asset test

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Britain has cut her CT rate by 5% in little more than 12 months.

I think Britain's move could well impact on foreign investment decision making with regard to comparing Ireland with Britain as an investment location.
Glib I know... But we should do a 10% rate for high tech.

Fup em.
 

gerhard dengler

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Glib I know... But we should do a 10% rate for high tech.

Fup em.
Common Consolidated Corporate tax base (CCTB) is something which also needs to be considered.

The Eurozone want to see commonality with regard to how corporate profits and corporate taxes are calculated.
Britain will not be subject to CCCTB as things stand.
 

factual

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The tax rate in UK has fallen from 30% 10 years ago to 20% by 2014. Making it lowest in G20. Our tax rate is still lower than theirs but the differential is less than half what it was.
 

MayoDub

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Mr Noonan was on PrimeTime tonight and was well tuned into Mr Osborne's announcement and using it (threat of competition of FDI looking at UK versus us) as a justification for not raising PAYE cutoffs/rates/USC for high earners.
Miriam tried to engage him in the argument that surely PRSI was still effectively an income tax.
This is something I find it hard to get my head around.

Ok - I see that the marginal tax rate is a headline figure but surely since PRSI affects gross income (and lower floor has been now removed) why wouldn't FDI/MNCs be smart enough to look at the effective employment tax (including employee PRSI ?).
Am I missing something here.
Is it that high earners are still insulated from PRSI being applied due to a ceiling or is it because there are some loopholes whereby execs can be exempt from PRSI ?
 

gerhard dengler

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Mr Noonan was on PrimeTime tonight and was well tuned into Mr Osborne's announcement and using it (threat of competition of FDI looking at UK versus us) as a justification for not raising PAYE cutoffs/rates/USC for high earners.
Miriam tried to engage him in the argument that surely PRSI was still effectively an income tax.
This is something I find it hard to get my head around.

Ok - I see that the marginal tax rate is a headline figure but surely since PRSI affects gross income (and lower floor has been now removed) why wouldn't FDI/MNCs be smart enough to look at the effective employment tax (including employee PRSI ?).
Am I missing something here.
Is it that high earners are still insulated from PRSI being applied due to a ceiling or is it because there are some loopholes whereby execs can be exempt from PRSI ?
PRSI is social insurance (pay related social insurance)
PAYE is tax (pay as your earn tax).
Changes in one or other - or both - will affect the net amount paid to employees.

PRSI may not be a tax. But any change in PRSI does affect net pay.
 

MayoDub

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PRSI is social insurance (pay related social insurance)
PAYE is tax (pay as your earn tax).
Changes in one or other - or both - will affect the net amount paid to employees.

PRSI may not be a tax. But any change in PRSI does affect net pay.
So an MNC might look at headline marginal rate and figure that PRSI comes with some social benefits for their employees even if it adversely affects their take home pay ?

I would have thought the MNCs would figure out the effective tax rate for their employees (much like they are well able to figure out the effective reduction in corp tax , once R&D and other grants are taken in to account for their own profits) and not give a toss about whether the reduction in their and employees take home pay was due to taxation or social contributions ?

I guess where I was coming from was whether the marginal rate of income tax is the barometer of whether we are a high/medium/low tax on employment jurisdiction or whether MNCs don't fall for that and look at the combined effect of all taxation.
The only reason, I would have suspected they might discount employee PRSI from their calculations would be if execs could slip out of it (via pension contributions) or some other legal loophole ?
 

MayoDub

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The PRSI change costs everyone the same, doesn't it?
It does seabhcan afaik - but more disproportionately in terms of absolute numbers for the lower earner with today's changes.
I am probably a good bit to the right politically/economically to you seabhcan - but it is good to call a spade, a spade.
 

gerhard dengler

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So an MNC might look at headline marginal rate and figure that PRSI comes with some social benefits for their employees even if it adversely affects their take home pay ?

I would have thought the MNCs would figure out the effective tax rate for their employees (much like they are well able to figure out the effective reduction in corp tax , once R&D and other grants are taken in to account for their own profits) and not give a toss about whether the reduction in their and employees take home pay was due to taxation or social contributions ?
PRSI applies in two ways.
It applies to employees and it applies to employers.

If an employer hires an employee at €50k per annum, the employer pays 10.75% in PRSI on €50k.
Separately, employees pay PRSI at 7.5% on €50k.
So the MNC employer will only be concerned with the Employer PRSI rate and not necessarily the employee PRSI rate.




I guess where I was coming from was whether the marginal rate of income tax is the barometer of whether we are a high/medium/low tax on employment jurisdiction or whether MNCs don't fall for that and look at the combined effect of all taxation.
The only reason, I would have suspected they might discount employee PRSI from their calculations would be if execs could slip out of it (via pension contributions) or some other legal loophole ?
At a guess an employers rational would be to see what taxes/liabilities is that employer liable for.
Again in terms of employment costs, employers PRSI would be a factor and in terms of general taxation issues like the VAT rate and Corporation Tax rate would be a factor.

Employees PAYE and/or employees PRSI are paid by the employee, not the employer.
 

MayoDub

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Yes - I realise the distinction between employer and employee PRSI and can totally rationalise which of those an employer would be more likely to be fixated on.

However, in terms of attracting high calibre / high paid employees I guess the employer needs to take account of the employee taxation especially when attracting someone from outside (either a returning Irish native or foreign born worker who needs to be acquainted/re-acquainted with the tax take on their take home pay).

Michael Noonan made the point that the marginal rate (as applies to employees) was the key benchmark rate upon which employers/employees made their decisions.

Is this rational , though ?
Potential employees , or employers as a proxy for attracting high calibre employees to their businesses should be fixating on the overall effective taxation regime that will affect their takehome pay (without making distinction on social contributions/income tax) shouldn't they ?
 

Thac0man

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Gideon Osborne has lowered the UK Corporation Tax rate to 21% (effective from March 2013).

Osborne Cuts Corporation Tax Rate to Boost U.K. Competitiveness - Bloomberg

Britain has now cut Corporation Tax rates from 26% to 24% and now to 21%.

Will this affect existing and more long term FDI to Ireland?
Will companies decide to locate (relocate) to a market which is closer to mainland Europe instead of Ireland?
It will have an effect, no doubt. Our need to retain the Euro, and for it not to fail, we be increased dramatically. We have artificially increased our desirability in terms of a location for foreign multi-nationals, but now the UK will put what we have developed under severe threat.

The consequences of stiffer competition with the UK might force us to contemplate actions that we have not yet seriously considered, ie. reducing our cost base to increase competitiveness. Our export surplus is up, only because our imports are down. Goverment attempts in the current budget to increase consumer spending, by taxing interest on savings, might yield greater VAT receipts, but its only taxing other nations generated wealth. Our body politics seems no closer to grasping what has to be done to develop our economy properly to weather the rough times ahead. The UKs move on corporate tax might help pry their eyes over.
 

gerhard dengler

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Yes - I realise the distinction between employer and employee PRSI and can totally rationalise which of those an employer would be more likely to be fixated on.

However, in terms of attracting high calibre / high paid employees I guess the employer needs to take account of the employee taxation especially when attracting someone from outside (either a returning Irish native or foreign born worker who needs to be acquainted/re-acquainted with the tax take on their take home pay).
Couldn't agree more.



Michael Noonan made the point that the marginal rate (as applies to employees) was the key benchmark rate upon which employers/employees made their decisions.

Is this rational , though ?
Potential employees , or employers as a proxy for attracting high calibre employees to their businesses should be fixating on the overall effective taxation regime that will affect their takehome pay (without making distinction on social contributions/income tax) shouldn't they ?
I'm not convinced by Noonan's argument in that regard.
 

MayoDub

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Thanks GD.
I don't want to divert this useful and timely thread into a discussion about nitty gritty of employee taxation but....

Is it the case that pension contributions are exempt from *both* PRSI and PAYE or is PRSI applied on gross salary and the only relief is in terms of PAYE ?
Is there still a ceiling after which PRSI doesn't apply.
If so, I guess high paid execs should care more about the marginal rate of employee tax compared to PRSI (since they are insulated from PRSI at the high end of their salary.. although maybe not from USC)
 
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