Virgin’s move puts Irish tax regime back in spotlight

Date: 16/07/1998

By Tim Jones

IRELAND'S special reduced tax regime for high-skill industries has come under renewed attack following news that Europe's second-largest low-cost airline is planning to shift operations out of Belgium.

Brussels-based Virgin Express' decision to open a subsidiary in Ireland and swap Belgian for Irish air-crew contracts was revealed in the run-up to a key meeting of EU tax experts today (16 July).

“We made this decision because Ireland has interesting corporate tax rates, lower social security charges and a very open-minded civil aviation authority,” said a spokesman for Virgin Express.

The group of national treasury officials established to enforce the EU's new code of conduct against predatory corporate tax regimes is currently scrutinising a long list of allegedly unfair tax breaks.

This includes Ireland's 10&percent; corporation tax rate - only one-third of the standard levy - on profits made by hi-tech manufacturers as well as specific services such as ship repairs, data processing, software development, telesales and film production.

“Several member states are contesting the low corporation tax rate,” said a member of the code of conduct group. “When Ireland profits from all kinds of help from Europe, it is unacceptable that they indulge in this kind of unfair and harmful tax competition.”

Virgin Express has not specified where it will be based in Ireland, but suspicions have been aroused that it will opt for Shannon airport, which benefits from another special regime. It has been growing less quickly than its Dublin counterpart and is believed to be interested in attracting a low-cost, no-frills carrier to provide frequent flights to London and key continental European destinations.

In preparation for the code of conduct group meeting, the European Commission has drawn up a list of tax breaks for investigation in every member state. These are broken down into four categories: tax breaks for intra-group services, financial services and offshore companies, specific sectors and regional incentives. The Shannon scheme has been notified under the fourth category.

The group's verdict on the regime will be crucial for the Irish government, which is seeking the EU's long-term blessing for a number of similar schemes in Dublin, Cork and Galway.

Under the first category of regimes, the Belgian government notified its notorious 'coordination centres' scheme. This allows multinationals to pay corporate tax as low as 5&percent; if they establish a European headquarters in Belgium to carry out management services for the rest of the group on the continent.

Competition Commissioner Karel van Miert, who is investigating this programme separately from the code of conduct group, said the “Belgian authorities are themselves going to look into their regime to try to bring it in line”.

Van Miert is also awaiting notification of the Spanish government's plans to create a special low-tax zone for financial services on the Canary Islands, known as the Zona Especial Canaria, along the lines already established by Dublin Docks. “They haven't done this yet, but it's going to be extremely problematic,” he said.