Ahead of any devolution Northern Ireland chiefs must investigate any tax avoidance schemes

Northern Ireland is a serious player in the international market to attract more foreign investment. The comprehensive requirement: can Northern Ireland offer a competitive combination of access to markets, favourable domestic costs including employment costs, an adequate infrastructure base, a stable society and taxation policies that help to ensure attractive post-tax returns on investment?

The Executive has placed particular emphasis on gaining authority to devolve company taxation, so that Northern Ireland can set corporate tax rates for businesses in Northern Ireland that compete with the rates in the Republic of Ireland.

If Northern Ireland introduces a company tax rate of 12.5%, the expectation is that more of the international companies locating on the island of Ireland would choose Northern Ireland.

Whilst company taxation rates are an important determinant of ‘bottom-line profitability’ there are many other contributory factors influencing location decisions.

Two major qualifications are appropriate.

First, the underlying trading conditions, including all operating costs, must operate to make Northern Ireland a competitive location. That introduces a continuing need for improvements in a whole range of issues.

Second, the impact of company taxation rates must be assessed against the range of other, sometimes ingenious man-made, legislative and procedural arrangements which influence business behaviour to reduce the impact of taxation.

The Irish government has become only too well aware of the growing international scrutiny of these tax related devises.

Internationally, through the OECD, and within the EU, there is scrutiny of what might be termed unfair or distorting types of tax related incentives.

Within the EU, the scrutiny is more focused on whether individual tax authorities (usually national governments but, with devolution, this will extend to regions such as Northern Ireland or Scotland) have broken the rules on State Aid.

This is a more defined concept where EU enforcement action is possible.

Within the EU there is already some codification of unacceptable practices in the tax treatment of businesses which operate in more than one jurisdiction.

Specific profit shifting from one jurisdiction to another through transfer pricing is not acceptable.