Finance Minister Michael Noonan was not present, as he returned to Dublin early, but the head of the Central Bank, Patrick Honohan and a number of the Government’s tax experts attended.
Usually, nobody mentions tax rates, other than to complain about the low rates in some countries, notably Ireland’s 12.5%, partly because the setting of tax rates is a national competence over which the EU has no say.
However, the reality is that some big countries, and especially Germany and France, have been promoting policies at EU level that would eventually effect the tax rates applied by different member states.
With proposals on Base Erosion and Profit Shifting (BEPS) due from the OECD later this year, and with the European Commission due to relaunch the Common Consolidated Corporate Tax Base in June, the issue is now coming to the surface.
The ministers gave the political green light also to tougher new rules that say every country must immediately communicate the tax arrangements they reach with big companies.
Ireland has removed some of the incentives for companies to set up a base in the country — such as allowing them to be ‘stateless’ for tax purposes, or avail of the ‘double Irish’ — that led to huge criticism from fellow EU members. And while the Department of Finance is co-operating both with the OECD and the various EU committees working on tax issues, they are very wary of tax harmonisation being introduced by the back door.
There was no big showdown at the weekend meeting in Riga as ministers discussed what are complex technical issues, but two faultlines appeared openly for the first time.
One was on the issue of tax harmonisation. Countries including Belgium, Malta, and the Netherlands, said that as small countries they needed advantages to attract business and since the euro rules do not permit many of the usual incentives to be used, tax was the only “tool in their arsenal”.
The issue of minimum rates arose recently in the working party meetings on the Interest and Royalties Directive — one of the BEPS issues — which was blocked when some countries insisted on including a minimum level of tax.
Most countries, including Ireland, favour splitting this directive and making progress in the areas where there is agreement. France, Germany, and Italy want to keep it together and insist that it should be agreed as a package.
Michel Sapin, the French finance minister, said harmonisation was not mentioned at the meeting. But he said the requirement for countries to share their tax rulings on companies was the “end of opacity on special treatment”.
The second faultline that has begun to surface is that between the EU and the OECD work on BEPS.
Several ministers said that while they continue to work with the OECD on this, the EU’s internal market would mean they would need their own set of rules.
Following the meeting the Luxembourg finance minister, Pierre Gramegna, said it was important to see how proposals from the OECD on BEPS would translate into European law.