May’s Deal Makes N. Ireland Corporation Tax Cut ‘More Likely’

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By Ben Stupples

Northern Ireland’s chances of a corporation tax rate cut are “more likely” after its leading political party struck a pact with the Conservatives to form a U.K. government, according to tax practitioners.

U.K. Prime Minister and Conservative Party leader Theresa May was forced to reach an agreement with Northern Ireland’s Democratic Union Party after Jeremy Corbyn’s Labour gained 29.

The surprise result left the Conservatives almost 10 parliamentary seats short of a majority, placing bargaining power in the hands of the DUP’s leaders as they look to set their own rate of corporation tax.

“Northern Ireland now has a strong voice, and the DUP is pushing for a corporation tax rate of 12.5 percent,” Heather Self, U.K. tax partner at London-based law firm Pinsent Masons, told Bloomberg BNA by telephone June 9. “Part of the price of their support will probably be getting back to that.”

Tom Wesel, a partner at London-based Milestone International Tax Consultants, told Bloomberg BNA by email on June 9 that the DUP’s deal with the Conservative Party makes a 12.5 percent tax rate for corporations “more likely,” setting it at the same level as neighboring Republic of Ireland.

Without the cut, Northern Ireland’s “businesses have little chance to compete with those in the Republic,” he added. “And the DUP is interested in retaining a strong separate Northern Ireland.”

Competitive Tax Regime

Northern Ireland is currently under the U.K.’s corporation tax regime, meaning its rate is higher than the 12.5 percent that businesses face in the Republic of Ireland.

By setting a lower rate of tax than its European neighbors, the Republic of Ireland has become an international hub for large foreign multinationals, drawing investment from the likes of Apple Inc., Google (Alphabet Inc.), and Facebook Inc.

Aiming to boost Northern Ireland’s competitiveness, the U.K. said in March 2015 it would devolve powers to local lawmakers and allow Northern Ireland to set its own rate of corporation tax.

The country has a target of setting a 12.5 percent corporation tax rate from April 2018, and the U.K. will devolve the powers once Northern Ireland’s leaders can demonstrate that “its finances are on a sustainable footing,” according to draft guidance from the U.K. government published last year.

DUP and Sin Fein Crisis

Yet a political crisis dating back six months—sparked by tensions between the DUP and its rival Sin Fein, who share control of the country—has left Northern Ireland without any stable leadership.

The recent inability of the two parties to collaborate has caused concern that Northern Ireland will fail to meet its proposed deadline for setting a corporation tax rate of 12.5 percent next year.

However, the DUP’s involvement in the U.K. government may mean that Northern Ireland receives the devolved corporation tax powers even if its crisis continues, according to Milestone’s Wesel.

“Overall, I think this issue will be quietly swept under the carpet and a 12.5 percent rate imposed either way,” he said. “Whether it will be much help is another matter. Most of the good people in northern Ireland have gone south” to the Republic of Ireland “to make their fortune,” he added.

‘Strong Relationship’

Speaking outside No. 10 Downing Street June 9 after the election, May said her Conservative Party and the DUP have enjoyed “a strong relationship” in the past, giving her the belief that they will be “able to work together in the interest of the whole United Kingdom.”

May called the election two months ago to extend her slim parliamentary majority and strengthen her hand in Brexit negotiations with the European Union, which are expected to start on June 19.

The Conservatives lost more than 10 seats from the 2015 election, prompting Labour leader Jeremy Corbyn to call for May’s resignation as his party secured a boost from the U.K.’s young voters.

A spokeswoman for Northern Ireland’s Department of Finance didn’t respond to a call and email requesting comment.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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