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Cowen Plays Down Impact Of ECJ Decisions On Ireland's Corporate Tax System

by Jason Gorringe,, London

25 July 2007

Ireland does not have as much to be concerned about because of European Court of Justice decisions in the corporation tax field as other Member States, according to the conclusions of a new study launched by Finance Minister Brian Cowen last week.

Speaking at the launch of the Study on the implications of European Court of Justice decisions on Ireland’s Corporation Tax regime, Cowen said that Ireland would be able to incorporate ECJ judgments into national legislation much more easily than many other EU member states.

"There have been some interesting developments since this study was concluded which serve to indicate both the importance of the European Court and our ability and willingness to respond to ECJ judgments in a timely way," Cowen told the audience.

He continued:

"For example, the ECJ judgment of December 2005 in the Marks and Spencer case was to the effect that a parent company resident in one Member State can offset the losses of its subsidiary companies resident in another Member State against its profits, where those losses cannot otherwise be relieved for tax purposes in that other Member State. This finding meant that the UK model of group relief, on which the Irish model was broadly based, required alignment with EU law. In this model a parent company resident in the UK was precluded from getting relief for the losses of a subsidiary resident elsewhere in the EU, in circumstances where the subsidiary's losses could not otherwise be relieved.

"In this year's Finance Act, I took measures to ensure that Irish tax legislation was amended to implement this ECJ judgment Section 48 of the Finance Act, 2007 introduced changes to provide relief, in the relevant circumstances, to Irish companies for the trading losses suffered by their non-Irish subsidiaries resident in other Member States. Where applicable, the revised legislation will allow an Irish resident company to offset against its taxable income the losses of an EU or EEA resident subsidiary.

"I would also mention that, while ECJ decisions may in some instances be to Ireland’s advantage, the extent of such advantage may also depend on the specific changes made by other Member States to bring their national law into alignment with the ECJ decisions."

Cowen went on to state that the Irish government would be aligning its laws with ECJ decisions in "ways that do not create new scope for tax planning in a more globalised environment."

He also reiterated Dublin's opposition to the principle of EU corporate tax harmonisation which he said would be detrimental to economic growth.

"Ireland opposes corporate tax harmonisation as a matter of principle. This position is clearly set out in the Programme for Government," he declared.

"We have seen from experience that low tax rates on capital and labour deliver jobs and growth. There are constructive things we can do in Europe to reduce tax barriers to trade, to use the tax system to stimulate much needed R + D investment, and to ensure a level playing field for taxpayers in Europe irrespective of their Member State of origin. Doing this does not require us to harmonise tax rates or tax bases across the board. Such harmonisation reduces the flexibility all countries need in applying their tax systems to address economic issues.

"I am committed to maintaining the 12.5% corporate tax rate which has significantly contributed to economic growth in Ireland. I will continue to develop policies that encourage inward investment, growth and jobs in the Irish economy."

Cowen pointed to recent remarks by the President of the European Central Bank, Jean Claude Trichet, when he stated at a meeting of the European Parliament that there are enormous differences in the levels of public expenditure in different EU countries – as much as 20% of GDP.

"How can there be a harmonised tax regime when there is such a difference in public spending across member states?" Cowen asked.

Ireland's low rate of corporate tax is however, not the only ingredient in Ireland's recent economic success, Cowen went on note.

"Although it is of great importance, Ireland’s corporation tax regime is not the only reason for Ireland’s emergence as the most FDI-intensive economy in Europe," he observed.

"Ireland has much to offer companies who wish to invest here such as EU membership; the English-language environment; a legal, regulatory and business framework familiar to US corporations; a pro-business outlook as well as political stability and a strong social partnership system," Cowen said.

A comprehensive report in our Intelligence Report series looking at offshore and onshore corporate structures and their tax implications is available in the Lowtax Library at and a description of the report can be seen at

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