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RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
RebalancingTheEconomyHMTreasury
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RebalancingTheEconomyHMTreasury

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  • Transcript

    • 1. Rebalancing the Northern Ireland Economy Richard Williams Corporate Tax Team, HM Treasury
    • 2. Context:
      • The Government has published a consultation document on rebalancing the Northern Ireland economy, which has been produced in conjunction with the NIE.
      • The paper sets out both UK wide and devolved policies for rebalancing the NI economy, an objective which both the UK Government and the NIE share.
      • In addition, this document considers possible mechanisms for devolving corporation tax rate varying powers to Northern Ireland . In doing so it meets a Coalition Agreement commitment.
      • The consultation paper does not make recommendations . The aim of this stage of consultation is to gain a fuller understanding of the costs and benefits that a separate rate would involve.
    • 3. Northern Ireland’s economic circumstances
      • Northern Ireland has a unique set of historical, geographical and political circumstances:  
        • firstly, the legacy of the Troubles;
        • secondly, the fact that Northern Ireland is the only part of the United Kingdom which shares a land border with another EU country and one which has a substantially lower CT rate than the UK; and
        • thirdly, it has a proportionately larger public sector than any other part of the UK.  
    • 4. Benefits from reducing CT rates
      • A competitive and stable tax system can help provide business with the confidence to invest and expand.
      • A lower corporation tax rate is likely to have a positive effect on local private sector investment and foreign direct investment (FDI) by increasing the return on capital to investors.
      • Other things being equal increased investment typically leads to growth and employment.
      • However, as set out in the paper, we should be cautious in assuming that lower corporation tax rates will have the effects ascribed to them in other countries.
      • In total, it is estimated that the level of investment in Northern Ireland would be around 6% higher each year if the corporation tax was reduced to 12.5%.
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    • 5. The Azores Criteria
      • Devolving any tax rate varying power must satisfy EU State Aid criteria. The European Court of Justice decision on the “Azores Case”, which sets out the criteria for regional differences in direct taxation:
        • institutional autonomy (the region must have political and administrative status separate to central govt)
        • procedural autonomy (decision to vary tax rate must be taken without central government intervention) and
        • fiscal autonomy (the region must bear the full fiscal consequences of changes in tax revenues)
      • In order to meet the fiscal autonomy condition, Northern Ireland’s block grant would need to be adjusted to reflect the fiscal costs of a reduction in the rate of corporation tax .
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    • 6. Estimating the costs
      • Estimates of costs and benefits are necessarily uncertain.
      • HMRC has limited current data on corporation tax payers in Northern Ireland
      • The paper presents estimates based on an assumption that Northern Ireland corporation tax receipts, excluding branches, represents about 1.5% of the UK tax base
      • Illustrative costs are also produced on the basis of a 1.25% assumption.
      • As well as the direct costs, there will be a number of behavioural effects – in particular the paper models the likely costs of Tax Motivated Incorporation (TMI) and artificial profit shifting
      • Will also be “dynamic effects” from increased investment in response to any rate cut which will offset costs to an extent
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    • 7. Further issues to be considered
      • The document outlines a number of measures which might allow that cost to be managed or deferred to help make it more affordable to the NI Executive.
      • Additionally would need to consider
        • Exact design of the regime and in particular how to apportion revenues between Northern Ireland and rest of UK
        • The impact of additional complexity within the tax system – especially for intra-UK trade and business
        • Exposure to Budgetary risks in Northern Ireland from volatility of CT receipts
      • The paper also covers other tax options including R&D tax credits, and enhanced capital allowances
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    • 8. DD Month YYYY PROTECT - IL2
    • 9. Next Steps
      • Consultation will run from 24 March until 24 June.
      • Following consultation, if the Government decides to pursue the policy further, the complexities associated with devolving a separate rate of corporation tax to the Northern Ireland Assembly mean this would take several years to implement.
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