Corporation tax rate could face attack after EC review
Yesterday Fine Gael leader Enda Kenny was accused by Finance Minister Brian Lenihan of inflaming backbenchers in Germany by raising the issue of the tax rate when he met with German chancellor Angela Merkel. Mr Lenihan said the issue had been moved off the agenda prior to Mr Kenny’s visit to Berlin.
Fine Gael leader Enda Kenny was accused of stirring up a hornet’s nest when he raised the issue in Berlin on a visit to Chancellor Angela Merkel.
Finance Minister Brian Lenihan said he had inflamed backbenchers in Ms Merkel’s CDU party after much diplomatic efforts to move it off the agenda.
But while the issue was not raised at yesterday’s finance ministers meeting in Brussels, the European Commission is planning to see if the Code, designed to tackle unfair tax competition in the EU, needs to be updated.
The country’s previous corporation tax regime ran foul of this code some years ago when it ruled that the government could not apply one rate — 10% at the time — to foreign business and a higher rate to domestic companies.
As a result the government took the unexpected step of cutting the domestic rate and raising slightly those for multinationals to the current 12.5% rate, the second lowest in the EU.
Tax commissioner Algirdis Semeta supported Ireland’s stance that tax competition within the EU is “not a bad thing.” He added he had no intention of proposing any harmonisation of the rates.
“But he stressed that he will fight unfair tax competition and that governments should not use technicalities of their tax systems to steal revenues away from each other,” said his spokesperson.
The commission has used the code of conduct on business taxation to tackle unfair tax competition in the EU, and the commission intends to see whether and how this code needs to be updated and reviewed this year, she added.
Mr Lenihan, attending what was expected to be his last EU finance ministers meeting, said the government had been making steady progress on the issue maintaining the tax rate at its current level.
“It had been left outside the EU-IMF arrangement… but Deputy Kenny’s stunt visit to Berlin and negative reaction from CDU backbenchers has threatened to put it back on the agenda here, which we are trying to move off the agenda and not engage in this kind of rubberneck diplomacy”
The issue however is of harmonising the tax base — devising a single way of assessing tax liability for cross-border companies — and not the tax rate. He said the issue had not been raised by the German minister at yesterday’s meeting.
Similarly with the issue of the interest rate, Ireland is being charged for its EU loans, which he said was just one of a number of items on the agenda of enforcing tough debt and deficit reductions across the EU and a programme designed to produce growth.
The EU ministers made no decisions on the economic governance and competitiveness issues before them which they are preparing for a special eurozone leaders summit on March 11 when they are also expected to agree to make the EU’s bailout fund more flexible.
