Corporation tax temporarily off agenda

THE issue of Ireland’s corporation tax should be off the table for Enda Kenny’s first meeting as Taoiseach with his fellow EU leaders next week.

There is more good news too for him about the interest rate on the country’s EU loan as Economics Commissioner Olli Rehn said it would be a key issue to be discussed in the context of countries ability to pay.

But after that Mr Kenny will be on his own as he will be under pressure to agree to link wages to productivity, pensions to life expectancy and put a legal limit on how much the Government can borrow to run the state.

He could also be facing an increase in bank interest rates as inflation continues to rise across most of the eurozone, with the danger of pushing those on tracker mortgages over the edge.

This morning Mr Rehn is expected to warn that inflation, up to 2.3% in the euro area in January, could be pushed higher by oil prices as a consequence of the pro-democracy uprisings in oil-producing countries.

The European Central Bank has repeatedly warned over the past few months about inflation and will discuss the latest increase at its meeting on Thursday and its implications for interest rates.

Experts from the eurozone met in Brussels yesterday to discuss a compromise package on the competitiveness pact demanded by France and Germany last month in exchange for making the EU’s rescue fund more flexible.

EU sources said there was support for the three main areas of the new pact — linking pensions to life expectancy, wages to three main trading partners and productivity and a legal debt break.

These would be voluntary with countries setting targets that would be reviewed by the EU leaders annually on a ‘name and shame’ basis. But Germany is expected to want to make fresh proposals next Tuesday at the next experts meeting on the subject.

But demands by French President Nicolas Sarkozy that Ireland should increase its corporation tax rate and bring it more into line with the average of 25% appeared to have been shelved.

Instead there will be a reference to having a harmonised tax base that companies based in several member states could use to calculate their tax liability rather than having to submit different tax accounts to each country.

However, the downside for Ireland could be how the tax would then be distributed as some of it would go to the countries where the goods or services were sold, some where they were manufactured and some according to where the company has assets.

The European Commission is due to issue its proposal on this Common Consolidated Corporate Tax Base later this month. This will be in time for the EU leaders summit on March 24 when all the elements of the revised rescue fund, tighter controls by Brussels over eurozone governments’ spending policies, the voluntary German competitiveness pact, and the interest rate on bailout loans should be finalised.

Mr Kenny will meet up to 14 of his fellow eurozone leaders at a special pre-summit get-together in Helsinki on Friday. It is being organised by the European Peoples Party — the largest political grouping in the EU — of which Fine Gael is a member.