The government should ask the European Union to relax state aid rules to help Irish businesses weather any market turbulence created by Brexit, politicians and lobbyists have said.
Theresa May, the British prime minister, is expected to indicate her willingness to pull the UK out of the single market, the customs union and the European Court of Justice in a speech tomorrow. It is expected to be the most detailed statement so far on the relationship Britain will seek with the EU after Brexit.
In anticipation of her remarks, politicians and interest groups advised the government to seek support from the EU to ensure businesses in Ireland do not suffer because of currency fluctuations or their reliance on the UK market.
Brian Hayes, the Fine Gael MEP for Dublin, said yesterday that he believed the government should make the case to the European Commission.
“The term ‘exceptional circumstances’ is there under EU rules and it would allow the state to reclassify capital expenditure as an off-balance sheet investment if the commission judged this to be appropriate.
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“I believe Brexit is an exceptional circumstance. We are the most vulnerable country in relation to Brexit and if we were deemed to be an exceptional case it gives us more leeway in relation to the deficit rules and in relation to whether investment is off-balance sheet or on-balance sheet,” he said.
Philip Hammond, the British chancellor of the exchequer, suggested yesterday that he could move the economy to a low-tax model if the EU did not grant the UK favourable market access.
Mr Hayes, a former junior finance minister, stopped short of saying that Ireland should lower its corporation tax rate in line with Britain.
“We have to keep a very close eye on this, I don’t see Britain moving to a 12.5 per cent rate or below that but it is an issue.
“We need to remain nimble on corporate tax, we need to stay ahead of the game, in circumstances where the United States and the United Kingdom are seeking to reduce corporate tax we have got to have the flexibility, via the European Union, to do the things we need to do to keep our comparative rate strong.”
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He said that Ireland’s tax position could remain competitive through measures such as the knowledge development box, which applies a corporate tax rate of 6.25 per cent to profits on intellectual property assets that result from research in Ireland.
A group of Irish MEPs including Mr Hayes will meet Michel Barnier, the European Commission’s chief Brexit negotiator, in Strasbourg this week for an update on Ireland’s position as talks approach.
Darragh O’Brien, Fianna Fail’s foreign affairs spokesman, said that the government should develop a fund in partnership with the EU that would protect businesses from Brexit-related failure.
“We have suggested that state aid rules should be relaxed so that a fund can be introduced that would level the playing pitch for Irish companies. Ireland is clearly vulnerable in this regard and we need to ensure businesses here are protected. A temporary framework that would help business diversify or restructure as part of their preparation for Brexit is vital.”
He suggested this would be a “firewall” to shield companies and could come in the form of easier access to low-cost loans or protection against sterling fluctuations.
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“Hopefully Theresa May’s speech will wake up the government and spark a bit of action.
“We’re moving into a critical stage in terms of the negotiations and I don’t get a sense we are prepared enough, we need to stop waiting for the EU to make these decisions we need to be proactive and identify areas that are in need of assistance.”
Danny McCoy, the chief executive of Ibec, said that the EU should stop attacking Ireland, as it has done with the Apple tax ruling, and acknowledge the impending economic hit the country will suffer because of Brexit.
“There is an inevitability that we will face more aggressive corporation tax rates from the UK,” he told The Times.
“Britain is much more favourable than Ireland when it comes to income taxation, the treatment of share options, capital gains tax and so on.
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“Ireland will be the worst-hit country, even moreso than Britain. The UK will not be bound by state aid rules so they’ll be able to tap up other businesses and incentivise people to relocate there.”
He called on the EU to allow the Irish government prop up its most at-risk industries with state aid in order to nullify the negative effects of Brexit.
“We can afford to do this ourselves because our public finances are in very strong order,” he said.
Mr McCoy disagreed with calls to alter Ireland’s corporate tax rate, saying that it would bring uncertainty.