Mr. Gerard Brady:

On corporation tax, Ireland is unique in lots of ways because of the type of economy we have, the level of globalisation and the size of some of the corporates that are here. If one takes the Irish manufacturing and industrial base, for example, about 80% of turnover is in 150 companies and this accounts for almost half of the wages also. It is not that it is accountants, rather that these companies are enormous. We can think of them across many areas of the State, including Irish domestic public limited companies, plcs, as well as multinationals. These are Irish multinationals that are going out into the world as well as multinationals that come to Ireland. It is often under-appreciated that Irish plcs employ almost as many people in the United States of America - some 100,000 people - and US multinationals employ some 150,000 in Ireland. It is not just inward FDI that brings this about, but it is definitely a challenge from a fiscal point of view in understanding how our tax system is going to work and in forecasting it. I am afraid I do not think there is any way one can forecast better when such a small number of decisions can have such a huge a huge impact on the corporation tax take.

From talking to our members, IBEC's view is that it is likely that some of the activity around inward migration of business into Ireland that has happened because of base erosion and profit shifting, BEPS, and because of the changes in corporation tax over the past couple of years will continue. Ireland is still seen as a very attractive place to have a European headquarters and to invest in enormous, substantial activities that some of the companies have here. That brings with it challenges such as how to tell when those decisions are going to be made and how one forecasts corporation tax arising from that. It is a very difficult thing for the Department of Finance to do. Over recent years, IBEC has said that it would be better to use that money on once-off investments rather than building it into the current spending base. This would not do anything to help in the forecasting but it would help to make sure that the base of current spending is not exposed to it. Ireland does not want a situation where we wake up in the morning and a corporate has made a decision that has left us with a couple of billion euro holes to fill in our current spending. With capital spending, it is much easier to turn the tap off on projects that are coming down the line. IBEC believes that the best way to deal with the volatility that is going to be there and that will continue is to ring-fence some of the corporation tax that flows from it for capital investment.

Turning to the research and development tax credit and the issues we have with it, on the one hand, Ireland has a really attractive regime. The Department of Finance performed a review last year that showed the bang for our buck - the cost effectiveness ratio - was 2.6, which is very significant in an international context. Essentially it means that companies spend around €2.60 for every euro that we spend in tax. Usually, if it is anything more than 1 or 1.5 in an international context, it is good value for money. The figure of 2.6 is huge. The review also showed us that some 40% of the research and development spend in the State, almost €1.5 billion, would disappear if the tax credit was not in place. That is a really effective regime. The changes IBEC hears that companies look for are mostly around the administration of the regime such as audit periods and making sure that there is consistency in treatment. In Ireland, for example, we have regional teams that do research and development tax credit audits rather than having one national team. In the UK, a team based in Cardiff does the audits and it has specialists in each of the areas who do audits for the whole country, but in Ireland regional teams do that.

Administration is a major issue. In terms of cost, the measures in our budget submission have been costed and they would be either cost-neutral or low cost. The only costs involved would be in administration and staffing. We have tried to do this because we are conscious that it is a large investment. However, it is also crucial for attracting high value activity. One of the major trends in recent years has been rather than a highly capital intensive factory being built somewhere and workers flocking to it, as occurs in the old-fashioned industrial model, companies are becoming increasingly mobile, even in terms of their laboratories, and will go to wherever people with skills are located.

From a corporation tax point of view, the biggest things we could do are on the personal tax side and in areas such as share options, housing and quality of life issues that make Ireland a more attractive place for skilled workers.

The evidence is clear on the 9% VAT rate. It has worked very successfully and continues to work. Withdrawing the 9% rate would be the wrong decision in the current climate. The number of British tourists declined by 6.5% in the first quarter of this year. Certain regions, particularly the north west, midlands and Border region, are reliant on UK tourists, with almost half of tourists to the BMW regions coming from the United Kingdom. They are already highly exposed to Brexit and the withdrawal of the 9% VAT rate would be a disaster for many hoteliers and others involved in the tourism industry in these regions.

We see many headlines about Dublin hotel prices and so forth. However, large numbers of companies in the tourism sector in rural areas are either still loss-making or only starting to make profits. A large chunk of the loss allowances availed of for tax purposes relate to the hotel sector. Many hotels continue to lose money because they made large investments in 2005, 2006 and 2007. Withdrawing the 9% VAT rate would do more damage to areas that are already being damaged by the swings in the value of sterling.