Friday, June 13, 2014

The EU has made a negative state aid judgement against Ireland’s Corporation Tax regime

The announcement this week is not the first time the calculation of the tax base for Ireland’s Corporation Tax has appeared on the radar of the EU’s state aid rules.  There was a previous formal investigation launched by the  EU in 2001 and it concluded in 2003 with a negative state aid ruling against Ireland.  Unlike now though the Ireland was not under the glare of international scrutiny and condemnation.

The case related to an exemption from Irish Corporation Tax for foreign income of Irish resident companies and branches if that income was used for investment and job creation in Ireland.  It was introduced in 1988 when the top rate of Corporation Tax was 40 per cent so there would have companies who would have benefitted if the tax rate in the source country of their foreign income was less than the Irish rate.  Of course, Ireland’s dual system of Corporation Tax fell foul of EU rules and the top was rate reduced significantly until the single rate of 12.5 per cent was introduced in 2003.

When the rate fell to 12.5 per cent the exemption of foreign income under investigation was almost obsolete as the tax rate in the source country for Irish companies’ foreign income was almost certainly to be greater than 12.5 per cent.

Anyway, the EU did undertake an informal information gathering exercise and subsequently proceeded with a formal investigation and concluded that the exemption was state aid.  The companies who benefitted from the state aid were not asked to make redress payments and by the time the final decision was reached the exemption was obsolete and only one part of it remained (and that had been closed off to new entrants in 2001).

Some details of the case can be accessed from here.  The quickest summary is in the press release rather than the judgements.

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