EU pressure to hike 12.5% corporation tax rate grows

THE days of Ireland being a low tax country are over, according to the EU’s economics commissioner, but the Government insists it will not increase the corporation tax rate.

France has added its voice to demands from Germany that the 12.5% tax charged to companies – the third lowest in the EU – be increased as part of austerity measures to pay off the bank debt.

Economics Commissioner Olli Rehn said after a meeting of EU finance ministers in Brussels that the tax issue was a matter for the Government.

He went further and added: “But I would not rule out any option at this stage since we know that Ireland is not going to be in the coming decade – it’s a fact of life – will not continue as a low tax country, but become a normal tax country in the European context.”

The Department of Finance reacted swiftly, saying that raising taxes will be part of the solution to resolving the fiscal problems, and added: “The corporation tax rate will remain at 12.5%.”

The statement added that each country has a veto in relation to taxation matters at EU level and this is further enhanced by Ireland’s legal guarantee in the Lisbon Treaty.

ESRI economist John Fitzgerald said he did not believe the commission would want to push the issue of corporation tax with Ireland. “We have raised taxes very significantly and we will have to raise them more – but not the corporation tax”.

However, the commission is continuing to pursue a policy of better coordinating direct tax across the union and taxation boss Algirdis Semeta announced he has set up a new tax policy group that will meet for the first time later this month. “The main objective is to find instruments for more efficient co-ordination of tax policies,” he said.

Last week, German MEPs in the European Parliament issued a statement saying that if Ireland had to borrow from the EU-IMF fund, part of the deal must be that the country doubles its corporation tax rate.

The European Commission and the European Central Bank president Jean-Claude Trichet again emphasised that the country must give a detailed breakdown of where the money will come from and how it be spent over the next four years to cut the deficit from 32% to 3%.

The department said the breakdown would be ready early next month.


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