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Ireland Prepares Defences Against European Tax Harmonisation

by Jason Gorringe,, London

26 April 2007

European Union Taxation Commissioner Laszlo Kovacs has reportedly told Irish business leaders that formal plans for a common EU corporate tax base will be unveiled by the European Commission next week.

According to reports in the Irish media, Kovacs told a gathering of the Irish Business and Employers Federation (IBEC), the Irish Bankers' Federation and members of the European parliament that the Commission will present revised proposals on a Common Consolidated Corporate Tax Base (CCCTB) next Wednesday. Kovacs said that he hoped the proposals would be in place by the end of next year.

According to the Tax Commissioner, the CCCTB is intended to bring "transparency, clarity and simplification" and a significant reduction in compliance costs for businesses operating within the EU. However, despite Kovacs's assurances that the system would be optional for businesses, many member states, including Ireland, are strongly opposed to the CCCTB plans, wary that it would be the first step towards the harmonisation of corporate tax rates across the EU, an idea favoured by France and Germany.

If this was the case, Ireland would certainly have a lot to lose, as its 12.5% corporate tax rate has been cited as a major ingredient in Ireland's economic revival in recent years, and investors certainly would not welcome European interference with Ireland's corporate tax regime. Consequently, organisations such as IBEC, and Irish politicians, have been lobbying in opposition of CCCTB.

One such politician is Irish MEP Eoin Ryan, a member of the economics committee in the European Parliament, who was reported to have led a delegation to Brussels on Tuesday to protest against the CCCTB proposals.

"I don't believe in assurances that a common consolidated corporate tax base will only be optional. That is because those who support CCCTB want to introduce common corporate tax rates too," he was quoted as observing by RTE.

In a speech to the European Parliament in November 2006, Ryan told MEPs that he "cannot and will not accept" moves towards a common corporate tax base.

"Tax competition is healthy for the economic development of the European Union. It provides a clear incentive to European Governments to manage their public finances carefully and to build a corporate tax regime that encourages enterprise," he stated. "The bottom line here is that no one size fits all policy covering corporate taxation matters in Europe is going to succeed. It is neither sensible nor realistic to seek convergence of corporate tax rates across Europe. EU member states have different demographic and social priorities. EU member states need to use their corporate taxation policies in different ways so as to entice foreign direct investment into their countries and generate employment."

In a statement published earlier this year, Ireland's Department of Finance reiterated the Republic's opposition to the Common Consolidated Corporate Tax Base plans.

"Ireland supports the Commission's efforts in transforming the European Union into the most competitive economic zone in the world but we do not believe that the introduction of a Common Consolidated Corporate Tax Base could advance the Lisbon Agenda nor that it could improve the competitiveness of the European Union," the department said.

The statement went on to add: "Our position on the CCCTB is well known. We do not favour it for reasons of principle and practicality. The proposal cuts across national sovereignty and subsidiarity. We believe that choices on taxation and expenditure are matters for each Member State. It is for each Member State to decide on the structure of its own tax system reflecting its historical traditions and social and economic priorities."

"There is no evidence that (the CCCTB) would address issues such as competitiveness for companies. It would create uncertainties for companies by abandoning the universally accepted separate entity approach and allocating profits across Member States by reference to an untried arbitrary formula. In overall terms, we believe that this project would not be supportive of European business."

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