IN business terms, it’s a no-brainer. The country which charges the lowest rate of tax on your profits is always going to be an attractive place in which to do business.
There are other factors in the decision where to locate, of course, such as an educated workforce and infrastructure, but a low corporate tax rate is always going to be among the most important. And Ireland has benefited hugely in recent years because of its corporate tax rate of just 12.5%.
In contrast, some other EU member states hit companies far harder: France’s corporation tax rate is just more than 34%, while in Belgium it is a fraction under 34%, and in the Netherlands it is 25.5%.
Looking at those figures, it’s easy to see the attraction of Ireland. Therefore, it would be a significant worry if the Lisbon Treaty stripped this country of its right to set its own corporation tax rate. But the simple truth is that it won’t.
It’s no secret that some member states detest the fact that Ireland has such a low corporate tax rate, believing it gives the country an unfair advantage, and would like to see the situation changed.
In particular, there has been much discussion recently — driven by the European Commission itself — of a “common consolidated corporate tax base”, or CCCTB.
This would mean the same method being used in every member state to calculate corporate taxes.
Under such a system, a company with operations in, say, Italy, Britain and Ireland would see their corporate tax being calculated in the same way in all three countries.
The commission’s belief is that this would reduce red tape. It wants a CCCTB to remove some of the difficulties for companies operating in more than one member state and therefore dealing with several different tax regimes.
Work is ongoing on the CCCTB, and it is being pushed hard by EU tax commissioner Laszlo Kovacs, who has said he will publish his proposals in the autumn — perhaps significantly, after the Lisbon referendum here.
It is also being pushed hard by some member states, among them France, which takes over the presidency of the EU in July and will therefore be in a position to lobby strongly on the issue.
A CCCTB wouldn’t necessarily mean the same corporate tax rate being applied in every member state, but simply that the same rules would be used in every country to calculate the tax a company owes.
Nonetheless, Euro sceptics would argue that were the CCCTB to be introduced, it would only be a matter of time before the European Commission pushed for harmonisation of rates as well as rules.
But the crucial point, as far as Ireland is concerned, is that it has the power to reject any proposal for a CCCTB. And the Government has made clear it will do exactly that.
The Government opposes the CCCTB because it believes it would cut across national sovereignty, and that choices on taxation and expenditure should remain matters for each member state. And the Government has the means to ensure this will remain the case.
While it is correct to say that the Lisbon Treaty would, if passed, decrease the number of policy areas in which member states have a veto, taxation is not among them.
Taxation will remain a policy area in which unanimity — ie, the approval of every member state — will be required for a proposal to be passed.
So Ireland will be able to veto any corporate tax proposal it does not like.
The independent Referendum Commission, established to give voters impartial information on the treaty, recently made this crystal clear, stating in its explanatory booklet: “The veto is retained in… taxation.”
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