Policy - The Londonderry Chamber supports the call to reduce Corporation tax

We are asking our members to support and endorse Chamber's campaign to have Corporation Tax rates powers devolved to the Northern Ireland Executive.

We believe that a lower Corporation Tax rate would be likely to have a very positive effect on local private sector investment and FDI. We believe that increased investment typically leads to increased growth and employment and this together with other positive interventions will lead to the rebalancing of the NI economy.

The Treasury have published a consultation document that considers a number of mechanisms for devolving corporate rate tax powers to the NI Executive. The Chamber intends to make a full response to this document on behalf of our members.

We would however encourage all our members to take time to register there individual support because the more positive responses there are, the more likely the Treasury will be to devolve the necessary tax varying powers to the NI Executive.

Please download the response template HERE. which should be edited and send to:
Richard Williams
Room 2/N2
HM Treasury
1 Horse Guards Road
London SW1A 2HQ

or alternatively email: niconsultation@hmtreasury.gsi.gov.uk

The deadline for responding to the consultation is now 1st July 2011. For further information on the consultation and to download the document go to
http://www.hm-treasury.gov.uk/consult_rebalancing_ni_economy.htm

Following a meeting with secretary of state Owen Paterson, Padraig Canavan, president of Londonderry Chamber of Commerce, said:

"The Chamber believes that all local businesses are very supportive of the move to have corporation tax powers devolved to Northern Ireland and corporation tax reduced. It's one of a number of things that makes the area more attractive to investors and gives businesses more flexibility in how they use their profits and enables them to invest more to stimulate further growth.

"That contributes to the overall aim of making Northern Ireland more self-sufficient and less reliant on the public sector.

"There was a significant collection of people from business organisations across Northern Ireland all in one room at the meeting with secretary of state Owen Paterson."

Current Corporation Tax Position
From 1 April 2011, companies and groups with profits up to £300k will pay corporation tax at a rate of 20%, companies and groups with profits over £1.5m will pay corporation tax at a rate of 26% (This rate will fall to 25%, 24% and the 23% over the next 3 years) and companies with profits between £300k and £1.5m will pay corporation tax at a rate between 20% and 26%.
In the Republic of Ireland the corporation tax rate is 12.5% for all trading companies and this rate is attributed to having attracted a large amount of foreign direct investment (FDI) into the Republic of Ireland over the last 20 years.

What has happened recently?
On Thursday 24th March 2011 the Treasury published a consultation document on rebalancing the Northern Ireland Economy. This document considers possible mechanisms for devolving corporation tax rate varying powers to Northern Ireland. The document confirms that a lower corporation tax rate would be likely to have a positive effect on local private sector investment and FDI. Increased investment typically leads to increased growth and employment, and could contribute to the rebalancing of the Northern Ireland economy.
The consultation paper does not make recommendations, it aims to gain a fuller understanding of the costs and benefits that a separate rate would involve. The Government will make decisions on the way forward in light of responses to the consultation.

What are the main benefits of reducing the corporation tax rate in Northern Ireland?
The document outlines the main benefits as being additional investment into Northern Ireland by new foreign owned firms and by existing firms. The document estimates that FDI will grow by over £300m per annum within 10 years of reducing the rate of tax to 12.5%. This will lead to increased economic growth and a stronger private sector to help contribute to the rebalancing of the NI economy. Ultimately the main benefit will be the creation of long term employment and a stronger private sector. This will provide a significant boost to all businesses in Northern Ireland.
The consultation document does not quantify the potential number of new jobs, however a report from the Northern Ireland Economic Reform Group last year estimated that a reduction in the rate of corporation tax to 12.5% could lead to the creation of 90,000 new jobs over a 20 year period. Whilst the number of new jobs cannot be guaranteed and is based on certain assumptions, the clear overall principal is that a reduction in the rate of corporation tax to 12.5% would result in a very significant number of jobs being created over the long term.

What are the possible downsides?
If the NI Executive were to obtain the power to vary the corporation tax rate and reduced the rate downward, then in order to comply with EU rules, any reduction in tax collected would have to be borne by the Northern Ireland Executive. However as noted below the impact of bearing such a cost can be spread out over an appropriate period so as to give the benefits of a reduced rate the opportunity to kick in.
There is also a UK Exchequer risk from artificial profit shifting by GB companies to solely benefit from a lower corporation tax rate in NI by either setting up brass plate companies ir by manipulating transfer p

ricing rules. In addition there may be additional administrative burdens for businesses. However none of these issues is insurmountable and with the appropriate legislation and monitoring, additional costs should be marginal.
Finally it should be noted that if the NI Executive does pick up the costs of varying the corporation tax rate then the EU Commission are unlikely to object to the Variation of the corporation tax rate in Northern Ireland.

How can you have a say in this process?
Business in Northern Ireland has the opportunity to respond to the consultation document and to tell Treasury whether the NI Executive should get the necessary tax varying powers and then to comment on when the rate reduction should be introduced, how the rate reduction should take place and what the final reduced rate should be.
All Northern Ireland businesses should take the time to respond to this consultation document because the more positive responses there are, the more likely the Treasury will be to devolve the necessary tax varying powers to the NI Executive.