THE REPUBLIC’S low corporate tax rate must remain a “core aspect” of policy if the system is to support long-term economic activity, according to the Commission on Taxation.
The commision’s report argues that tax on business should be kept low and the overall system should be internationally competitive. Overall, it makes 25 recommendations in relation to business. Its remit was to consider how the tax system could support economic activity and employment, while meeting the cost of public services and other Government outlays.
The report says the 12.5 per cent charge on company profits must be kept. It points out that research by the Organisation for Economic Co-operation and Development (OECD) shows that low corporate tax rates are key to attracting mobile investment, and states that the Irish experience bears this out.
According to the commission, OECD figures show that the Republic has the third-highest “stock” of foreign direct investment relative to the size of its economy of all its participating countries. The report states that international comparisons suggest that the Republic continues to attract significant numbers of new multinational projects and says this is partly due to having a competitive corporation tax rate.
In terms of general business taxes, the commission recommends that companies be allowed to choose to write off research and development (RD) credits against employee social insurance charges. Under current rules, the system allows for 25 per cent of incremental RD spending, dating back to 2003, to be written off against tax on company profits.
The commission points out that, during consultations, it emerged that allowing some international companies to write off the credit against employee social insurance charges would boost their Irish facilities’ competitiveness.
As the current system suits other players, the commission says that the companies should be allowed to choose how they want to apply the credit.
The report says the corporation tax holiday for start-up companies – introduced in last October’s budget – should be extended to companies setting up in 2010 and 2011, and recommends introducing a similar scheme for businesses that are not incorporated.
The commission recommends that all companies should be allowed to use a “previous year” option when it comes to paying preliminary tax. All companies pay preliminary tax, but those whose corporation tax liability was €200,000 or less during the previous year can base their payment on this. The report argues that extending the choice to all companies would cut the administrative burden for bigger businesses.
In terms of deals, the report calls for the abolition of stamp duty on all share transactions. It also says that tax payable on the sale of assets used for trading should be at 12.5 per cent instead of the current 25 per cent rate.
It argues that this would allow companies more scope for reinvestment, and points out that if the proceeds are distributed to shareholders as a dividend, those payments would be taxed in any case. The commission describes the air travel tax introduced earlier this year as a potential barrier to growth and calls on the Government to look at its likely impact on tourism and business travellers.
