Statement by TUV leader Jim Allister:-
“On 3rd March 2015 in the Assembly, as the follow up to an Oral Question* I had tabled on Corporation Tax, I questioned the DETI minister in these terms:-
Mr Allister: …. “On the issue of just how attractive it would be to reduce corporation tax and all the hype about that in the context of the manufacturing industry, is the Minister not struck by the fact that, at the very time when it seems that corporation tax will be reduced, one of our largest manufacturers, alas, JTI, will depart our shores undeterred by the lure —
Mr Deputy Speaker (Mr Dallat): Mr Allister, I think that we have a question at this stage.
Mr Allister: — that is supposed to exist in reduced corporation tax?”
Mrs Foster: “On the latter part of the question, we discussed the lowering of corporation tax with JTI Gallaher — he would expect me to do that — but, because of the tax system in Japan, it would not have benefited from the lower rate in Northern Ireland.
We did of course look at that in great detail.”
“Thus Arlene Foster assured the House that “because of the tax system in Japan” JTI would not have benefitted from lower corporation tax. She further declared that she at looked at the matter “in great detail.”
“As it turns out Minister Foster had clearly not looked at the matter in sufficient detail, because in a further answer to me she has now had to admit that JTI would have qualified for lower corporation tax, but decided to leave anyway!
“I followed up the oral exchange with this Question:-
“To ask the Minister of Enterprise, Trade and Investment, pursuant to AQO 7725/11-15, whether the tax system in Japan precludes any Japanese company investing in Northern Ireland from benefitting from the suggested lower rate of corporation tax; and if not, why this does not apply to JTI.
“Now, in her reply the minister has admitted that she got it wrong regarding JTI. So much for the assurance of having looked at it all “in great detail”.
“The minister’s interesting reply is as follows:-
Specific detail regarding the devolution of Corporation Tax to Northern Ireland has been the subject of intense discussion with HM Treasury during the latter months of 2014 in preparation for the Bill progressing to the House of Commons in January 2015. Consequently much of the specific detail regarding the rules of such devolution continue to evolve.
It has been recognised that Japan has specific “Anti-tax haven” Controlled Foreign Company rules that are triggered when a Controlled Foreign Company enjoys a corporation tax rate “trigger” of 20 per cent or less. In such circumstances, under Japanese taxation legislation, the Controlled Foreign Company income is added to the Japanese shareholder company’s income and treated as if it were earned in Japan. This was the rule which I referenced in my response to AQO 7725/11-15.
However, further work that has been undertaken with the Embassy of Japan has subsequently clarified that there are a number of “exceptions” to this broad principle that, if applicable, will result in Japanese owned operating foreign entities being exempt from the anti-tax haven trigger. This reveals that all of the Japanese owned operations, currently located in Northern Ireland, are highly unlikely to trigger the anti-tax haven legislation even if the rate falls below the 20% trigger as they satisfy what are termed the “active business exception” tests as applied by the Japanese taxation authorities.
As a consequence of the above JTI, like the other Japanese entities, would benefit from the lower rate of corporation tax should it be introduced into Northern Ireland. However, following discussion with JTI management, it is clear that the availability of a lower corporation tax regime would not be a significant factor in their decision to cease operations at Lisnafillan. This is because the combination of changing market conditions and, specifically, introduction of the EU Tobacco Products Directive are the key economic determinants of their decision.
“So, not only did the minister get it wrong, but, tellingly, I was right in my original suggestion that, despite all the hype over corporation tax, it was not enough to keep JTI, suggesting generally corporation tax may equally fall short of the hype about how an irresistible magnet it will be for potential foreign investors.
“The reality is that minister Foster and her colleagues, I believe, have been over-egging the corporation tax pudding. As JTI demonstrates it is not the silver bullet some like to pretend.
* http://aims.niassembly.gov.uk/questions/oralsearchresults.aspx?&qf=0&qfv=1&ref=AQO%207725/11-15