Kenny set to clash with Merkel on corporate tax
In what appeared to be a breakthrough in Ireland’s demand for a better deal on the €67 billion EU/IMF loan on the eve of today’s summit, Ms Merkel said she would support a moderate reduction in the cost of the rescue loan.
But there were also renewed fears that the country will come under fresh pressure to cut its 12.5% corporation tax rate as some countries pushed for references to “harmful tax competition” in the overall agreement to be discussed today.
Ahead of his first EU summit, Mr Kenny was adamant he would not concede on either a common tax base or a harmonised tax rate.
“People looking for an increase from Ireland’s point of view will not be tolerated by me,” he said.
“I consider the corporate tax base would have the same effect. It would be harmonisation of tax by the back door,” he said following an hour-long meeting with commission president José Manuel Barroso.
Ms Merkel was reported by Bloomberg as telling the Bundestag’s European Affairs Committee yesterday that she would agree to lower the interest rates to Ireland if they backed a common corporation tax base and for Greece if it agreed to sell state assets.
Despite Mr Kenny’s determination not to sign up to a common tax base, reports prepared for the commission show that 80% of EU businesses are in favour. They believe filing just one tax return for all their EU branches would save money.
Under proposals to be published next week by the European Commission, companies would be able to offset losses in one country against profits in another and arrive at a net profit or loss for all their activities in the EU. Countries would be entitled to tax on the basis of where a company produces its product, where it has its capital including intellectual property, and where it sells its goods.
Countries could decide to opt in or not but Ms Merkel appears to be trying to force Ireland to opt-in in exchange for a cut in the 5.8% interest rate on the bailout.
Ironically, studies carried out to calculate the impact of a common tax base contradict allegations, by Germany and France in particular, that our low tax rate constitutes unfair and harmful tax competition.
The studies show that Ireland’s system is transparent and fair, said an EU official, while those of some other countries, such as the Nordics, “have all kinds of tricks” which means the real tax rate is different to their advertised one.
Agreement on a comprehensive package of measures to prevent future crisis, improve economic governance and growth, and reform the bailout fund is doubtful over the next two weeks.
Mr Kenny also met Irish Commissioner, former Fianna Fáil minister, Máire Geoghegan-Quinn. They served together in the Dáil where both of them took over their fathers’ seats.
