British loss is an Irish gain

Analysis: British tax authorities could be forced to repay hundreds of millions of pounds in tax following the opinion of the European Court of Justice yesterday in the UK's battle with Cadbury Schweppes.

But the implications for Ireland are, if anything, more significant. An adverse ruling yesterday could have fatally undermined the favourable tax regime the State put in place to attract foreign business to the IFSC and the broader Irish economy.

The opinion of advocate general Phillippe Léger has yet to be confirmed by the full court - a decision that could be months away - but it is rare for the court to overrule their officers.

Aileen O'Donoghue, director of Ibec lobby group Financial Services Ireland, said Mr Léger had made some "compelling arguments which vindicate the right of companies to locate in Ireland and to profit from it".

"A number of tax authorities in other member states have sought to undermine the right of freedom of establishment for what appear to be protectionist reasons - this is entirely unacceptable," she said.

And Brian Keegan of the Institute of Chartered Accountants in Ireland, said: "The finding must be seen as good news for all of us who recognise the significance of the Irish tax regime in attracting foreign investment to this country. The advocate general's comments are particularly important given his recognition that not all decisions to locate businesses in this country are driven by artificial tax avoidance reasons."

While there remains some concern at how tightly the UK courts might look to define whether a company has a real or artificial presence in the State to benefit from the lower tax rate, KPMG tax partner Conor O'Brien says the ruling is broadly good for Ireland.

"There was always a suspicion, especially in the financial services sector that 'controlled foreign corporation' rules of the UK and other EU states were not compatible with EU law but no-one had, until now, challenged them," he said.

And he said the ruling was a final nail in the coffin of corporate tax harmonisation. Ironically, Ireland and Britain have been the major opponents of such a process.

Failure by Cadbury at the European Court would have been a major problem for Ireland. The company's success opens the doors to further European foreign direct investment in our economy.