Late last month, EU Tax Commissioner, Lazlo Kovacs announced that he intends to press ahead with the presentation of legislation to create a single European corporate tax base, despite strong opposition from five member states.

Mr Kovacs revealed that he plans to put forward his proposals next year, with the intention of legislating on the matter before his mandate ends in 2009. Although the UK, Ireland, the Czech Republic, Estonia and Slovakia are opposed to any move towards corporate tax harmonisation, Mr Kovacs stated that he is prepared to leave them outside the scheme, and move forward under the auspices of an 'enhanced cooperation' initiative.

"We don't think we should waste time trying to convince the other five," he explained. The Tax Commissioner went on to add, according to the FT, that: "We consider that if companies were allowed to apply a single EU-wide set of rules for company tax purposes, this would eliminate most of the problems such as double taxation they currently face when they do business across borders. It would also lead to a substantial reduction in compliance costs."

However, Mr McCreevy told the audience of accountants last week that:

"At an EU level taxation does not fall within my specific remit although there are of course many significant taxation issues that are pertinent to the operation and success of the internal market."

"There is perhaps no more controversial issue in a European context than taxation. Views on the subject diverge significantly. It is a subject which touches closely on issues of national sovereignty. But that’s just one reason why Member States, including Ireland, insist that all measures in this area be subject to unanimity and why there has been strong resistance to qualified majority voting. That situation will not change."

"This is not just a matter of the defence of national sovereignty. It goes much deeper than that. The structure and level of taxation is one of the key elements in determining the competitiveness of a country’s economy."

He went on to add:

"There are some who argue that lower taxation in one Member Sate than in another doesn’t give a level playing field. But they are dreaming if they think that by levelling up the taxation levels across Member States, they would attract more inward investment or encourage more economic activity."

"The harsh reality is that in the global economy in which we live, investment will flow to where it attracts the best return – Higher taxes across Europe would be followed by lower investment across Europe and higher investment flows out of Europe."

"Tax competition between Member States is healthy in that it keeps pressure on governments to watch their domestic spending and keep their tax regimes internationally competitive."

Mr Kovacs' proposal to harmonize the tax base doesn't of course include harmonization of tax rates, it merely instals a common basis for the calculation of taxable income. But the UK and its allies see this as a first step towards harmonization of rates.