COMPANY PROFITS:FINANCE MINISTER Brian Lenihan stressed in his Budget speech yesterday that the Republic's 12.5 per cent tax on corporate profits would not be increased.
The rate is among the lowest charged on company profits in the EU and is the key to attracting mobile investment and multi-national employers to the State.
Before unveiling a number of tax measures aimed at boosting business, Mr Lenihan said the rate has been a key element of the Republic's tax system and a cornerstone of its industrial development over the last decade.
"I want to emphasise that this rate of tax is not for changing upwards and it will continue to be a vital part of Ireland's economic brand," he said.
Mr Lenihan added that the low company profits tax rate was vital to the "vibrant and modern business base" on which the Republic's economic prospects depend.
According to recent reports, representatives of both the British and US governments have raised the issue of the low tax rate with the Government because of its effectiveness in attracting capital from other jurisdictions.
A number of British companies recently announced their intention to establish corporate headquarters in Ireland in a move to avoid the higher taxes levied in that country on company profits.
Mr Lenihan announced that new companies will get a three-year holiday from corporation tax and capital gains tax, subject to certain limits.
Business people welcomed the move as it "sends out the right message" but pointed out that companies at this early stage of their lives rarely pay large amounts of tax.
The Minister said that the measure recognised the challenges faced by start-up companies. Mr Lenihan told the Dáil that he intends increasing the tax credit for research and development (RD) from 20 per cent to 25 per cent.
A number of business bodies lobbied for this move ahead of the Budget. The Minister said this would move the Republic to the "forefront" in terms of the incentives offered for RD and boost Ireland's attractiveness as a location for this activity.
He said that further measures could be included in next year's Finance Bill. Kevin McLoughlin, head of tax services at Ernst Young, said that the move should provide further incentives for companies to carry out RD here.
However, he added that benefits such as extending this break should be balanced against the fact that businesses will be making an increased contribution to Government cash flows next year, as a number of tax payment deadlines are being brought forward.
The Minister singled out intellectual property in his speech, but gave no specific commitments in this field.
"If this sector can provide jobs and revenue to the State, I am willing to listen. I have asked the Commission on Taxation to investigate options in this area and I plan to return to it in the future."
Overall, the Minister said that despite the Government's need to increase taxes, it is still important to maintain pro-business and employment tax reliefs. "As an economy we are open to new business and new investment," he said.
Eoghan Quigley, tax partner with KPMG, said that from a business stand point, Budget 2009 was a non-event.
"Overall, the business tax measures such as the increase in the rate of RD tax credits and the three-year tax exemption for start-up companies is favourable to the internationally focused businesses upon which Irelands future is so dependent," he said.
"However, this is a Budget that was dominated by income tax and VAT changes, and from a pure business tax perspective, it was largely uneventful.
