Ireland's 10% rate of corporation tax on income from various manufacturing activities is guaranteed by domestic legislation until the end of the year 2010. The 10% corporation tax rate for income from trading operations carried on the Dublin International Financial Services Centre and the Shannon Airport Zone has been approved by the European Commission until the end of the year 2005.

In response to concerns raised by multinationals with operations in Ireland as to the position thereafter, the government recently announced its proposals for corporation tax for the post-2005/2010 era.

Peter Madden, a specialist in our Taxation Department, takes a look at these new proposals

The present government intends to introduce a new corporate tax regime that will involve a single rate of 12.5% corporation tax on profits arising from trading activities with a higher rate of 25% in respect of profits from non-trading activities.

It is proposed that the new regime become effective from the beginning of the year 2011 for companies qualifying for the general manufacturing rate of corporation tax and for all other companies with effect from the 1st January, 2006.

The standard rate of corporation tax in Ireland hass been reduced from 40% to 36 (with the introduction of a 28% on the first œ50,000 of profits) over recent years and it is anticipated that the reduction of the standard rate to 12.5% will take place over the next nine years.

The proposed changes are likely to have an effect on the present corporation tax yield, and with this in mind the Government is to consider options available to it to minimise the loss of tax yield.

These options have not been outlined in full but it is likely to involve the abolition/restriction of existing business reliefs such as the Business Expansion Scheme.

It may also involve the removal of tax credits attaching to dividends and the subjecting of dividends to income tax without any credit for corporation tax paid by the dividend paying company.

It has also been indicated that measures are to be examined in order to combat tax leakage from the personal sector through a growth in the use of company structures. This might involve an extension of the existing 20% surcharge on undistributed investment and rental income of certain companies.

The Irish Prime Minister indicated that an expert group consisting of representatives of the Government Departments of Finance, Enterprise and Employment and the Irish Revenue Commissioners is to be established to consider the various proposals. The European Commission have also been notified of the proposals.

Main Features:

1. A 12.5% corporation tax on trading income from 2005/2010.
2. A 25% corporation tax rate on passive income.
3. Phased introduction of these rates.
4. Expert group to consider proposals to minimise the loss of tax yield

For more information on Irish corporation tax and other taxation matters, please contact Michael Greene or Peter Maher.

This article was intended to provide general guidelines. Specialist advice should be sought about specific facts.