McCreevy set to defend tax rates

PLANS by the French Finance Minister to force countries like Ireland to raise their company tax rates or forfeit EU funding have been rejected by the European Commission.

But stiffer rules forcing companies that benefit from EU funds to pay back the money if they relocate within seven years will be proposed later this year.

Finance Minister Charlie McCreevy this weekend will spend possibly his last EU meeting in the job before becoming a Commissioner on November 1 defending Ireland’s low 14% corporation tax rate.

But he will have much more support as many of the 10 new member states have followed Ireland’s example with similar low rates.

French Minister Nicolas Sarkozy fears companies will relocate to the new member states, where they would pay 19% tax compared to 35% in France.

He argued that if countries could afford to forgo corporate tax, they should not receive EU funding.

However, Commission spokesperson Jonathan Todd said this logic did not apply.

“This is muddled thinking to say you have to be rich to have high tax rates, whereas countries that are poor have low tax rates to attract investment,” he said.

The Commission agrees that companies benefiting from structural funds will have to reimburse the money if they leave within seven years. Up to now the rule was for five years.

This is to ensure that companies in poorer EU regions do not benefit from funding designed to increase investment in the region, and then move to a country where the wages are lower.