Ceisteanna—Questions. Oral Answers. - Corporate Tax Regime.

Charlie McCreevy

Ceist:

1 Mr. McCreevy asked the Minister for Finance the proposals, if any, he has to take on board the concerns of other EU member Governments regarding the structure of the Irish corporate tax regime; and if he will make a statement on the matter. [4007/97]

Michael McDowell

Ceist:

3 Mr. M. McDowell asked the Minister for Finance the Government's plans, if any, for the 10 per cent manufacturing corporation tax rate and for the IFSC 10 per cent rate in view of the fact that the existing arrangements must be reviewed in 2010 and 2005 respectively. [4028/97]

I propose to take Questions Nos. 1 and 3 together.

As I indicated in my Budget Statement, the Government is studying the appropriate corporation tax structure for the long-term, bearing in mind the importance of the 10 per cent rate for inward investment and the International Financial Services Centre. I am conscious of the need to clarify this issue at an early date and I hope to be in a position to make an announcement in due course. Under present legislation, the 10 per cent rate is due to continue until the end of 2005 in the case of the IFSC and until the end of 2010 in the case of manufacturing industry generally. The primary objective of the review which is currently under way is to provide for a corporation tax structure after these deadlines which will ensure that Ireland remains a competitive location for internationally mobile investment. The review will also take due account of the importance of maintaining the very constructive and good relations which we have enjoyed with our tax treaty partners abroad. The particular concerns which other EU member states have raised up to now in regard to our existing corporate tax regime have been addressed generally in the context of the established tax treaty provisions with such countries and it is intended that this will continue to be the case in so far as the tax regime post 2005 and 2010 is concerned.

This matter concerns a large number of companies and I am sure the Minister received representations from IBEC in this regard. Large multinationals make decisions years in advance and some industries have a long lead-in timescale. While the years 2005 and 2010 may appear to be a long time away for many of us, that is not the case for multinational companies who must start planning now for those years. What is the Government's strategy on this matter? Will it approach the Commission on the basis that it can be decided under our taxation policy or will the concerns of the Commission and other countries, who regard our tax structure as a State aid, be taken into account?

Two separate but related tax rates apply. The rate that will apply up to 2005, with specific reference to SFADCo and the IFSC, is regarded by the Commission as a State aid and a derogation was obtained. The general rate of 10 per cent for manufacturing and internationally traded services is not a State aid. It has been our rate of corporation tax for many years. We are conscious of the concerns in the multinational and indigenous sectors and of the demands from non-10 per cent paying companies to address the issue to facilitate medium to long-term planning. We are in the process of formulating a strategy but have not yet concluded its components.

Is the Minister's phrase "in due course" radically different from "in the next two months" which I read in the newspapers recently in terms of when a document in this regard will be published? Does he agree it is important, as IBEC has suggested, to show incoming industry that we are committed to applying rates as close as possible to the current base rate? Does he agree we must engage in a substantial overhaul of the ordinary corporation tax rate to place ourselves within shouting distance of a uniform rate that would not be significantly different from the rates that already obtain?

I hope "in due course" is as soon as possible. As I believe in forward planning, I would like to be in a position to publish the document in two months. Irrespective of the final position, our objective is to apply a corporate tax rate as close as possible to the current base rate of 10 per cent. Corporation tax has been reduced by one-third for more than 50 per cent of companies who paid 40 per cent corporation tax when the Deputy's party was last in office. The tax rate that applies to companies reporting profits of £50,000 or less will reduce to 28 per cent after 6 April. In the course of three budgets we have reduced the corporate tax rate by one-third for primarily small and medium sized Irish companies. We are moving in the right direction and I would like to maintain that momentum.

Like other Ministers, I note the Minister for Finance has commenced his election campaign.

One never stops campaigning.

It would be a foolish politician who would. Has the Minister noted recent comments by the German Finance Minister, and others, who are casting envious glances at our corporation tax rate? The German Minister for Finance more or less implied that the matter should be considered as part of European Monetary Union discussions? He wants the matter examined in the short-term. This has sounded alarm bells for people who invest here as well those who operate here. I urge the Minister to review the matter as quickly as possible and give clear signals in this regard. As large numbers of people are employed by these companies, the matter is of national importance.

The comments of my colleague, the German Minister for Finance, should be set in the context of the domestic politics in Germany. A coalition of parties, that included his, defeated my sister party, the SPD, on a claim that Germany could be reunified without increasing taxes. That proved a lie for the Conservative Party in Britain and, consequently, corporate and general taxation rates in Germany are high. They are now trying to address that problem and, in doing so, referring to other European Union countries.

I accept the validity of the claim of prospective investors already located here who are contemplating expansion and the indigenous sector, both the 10 per cent and the non-10 per cent, that they need some sense of certainty in so far as any Government can provide it. It is my intention to provide that and I would like to be in a position to do it within two months or something of that order, but within a short timeframe, not an openended one.

Does the Minister agree that the deadline of 2005 must be urgently addressed? Having a standard Irish tax rate of 10 per cent for financial services could be one way of dealing with the domestic and international financial service markets.

In that context, does the European Union regard the 10 per cent manufacturing rate as a matter which need not be addressed on an EU level in 2010, except in the context of the general alignment of tax rates? Is it, therefore, possible that we could have a general tax rate of 10 per cent on financial services in the Irish economy from 2005 onwards? Is that one way of addressing that problem without prejudice to the general issue of what happens five years later?

The 10 per cent rate which applies to the IFSC and Shannon, where the level of activity is small, is specifically recognised by the Commission as a State aid. The status of the 2010 deadline is in a different category. I would have to take advice and examine the implications of what the Deputy proposes. As we move closer to market harmonisation, the Commission would have a strong view on all taxation issues.