Corporation tax: IFS sceptical about tax devolution

Corporation tax is “not a good candidate for devolution” an independent think tank has concluded.

The Institute for Fiscal Studies (IFS) analysed the Autumn Statement, in which the chancellor made a conditional offer to devolve the tax to Northern Ireland.

The IFS said such a move could introduce profit shifting and tax competition within the UK.

However, it acknowledged there are arguments that Northern Ireland has “special circumstances”.

Those circumstances include a land border with the Republic of Ireland which has a corporation tax rate of just 12.5%.

The UK rate is 21% though it will be reduced to 20% in April 2015.

The IFS said there are also uncertainties about working out how much profit, on which the tax is levied, is earned in Northern Ireland.

On Wednesday, Chancellor George Osborne said corporation tax could be devolved if Northern Ireland’s politicians resolved their differences over the budget and welfare reform.

Mr Osborne said: “We recognise the strongly held arguments for devolving corporation tax setting powers to Northern Ireland.

“The Treasury believes it can be implemented, provided the Northern Ireland Executive can show that it is able to manage the financial implications. The current talks will see if that’s the case.

“And if it is, the government will introduce legislation in this parliament.”