Ireland gets Swedish backing in corporation tax row

SWEDEN’S finance minister Anders Borg has come out in favour of low corporation tax rates, saying raising them would be dangerous for the Swedish industry.

His country is not in the eurozone but he said he will decline to sign up to the Competitiveness Pact at next week’s summit. All the euro area states are expected to agree to the pact and a number of others, including Denmark will also adopt it.

The pressure on Ireland to raise its corporation tax rate is expected to heighten on Monday at the euro area ministers meeting, called to finalise a range of issues for the summit at the end of the week.

An EU source said: “Ireland will have no room for manoeuvre, especially if the French continue to take the strong stand President Sarkozy did last week.”

The Irish are hoping to offer a non-tax related commitment in exchange for getting a reduction in the interest rate payable on the EU loans, such as putting a limit on government deficits into legislation.

Sources said the Irish may have to show more flexibility on engaging with the commission’s proposal on a Common Consolidated Corporate Tax Base (CCCTB).

While Ireland has support from a number of countries when it comes to resisting a unilateral demand to harmonise tax rates, support is less on the individual issue of swapping some leeway on tax for an interest rate cut.

The Irish will be hoping that Sweden may express its concerns about the CCCTB and corporation tax competition generally during the summit, when all 27 leaders are gathered around the table.

Mr Borg said that to raise corporation taxes may not be the best thing to do if you want to achieve growth — a point the Irish have been making.

“It’s very good to have a low, competitive corporate tax for Swedish companies. Raising them would be very dangerous to Swedish industry,” he said.

The Swedes said they also see political and economic problems with CCCTB — which would not harmonise taxes as such but would introduce one EU-wide method for calculating the tax liability for cross-border companies and distribute it according to sales, labour and capital.

A Swedish spokesman said: “The proposal, which is very comprehensive, entails consequences for both public finances and the competitiveness sofa Swedish companies, which are very hard to predict.

“For the moment we are studying and analysing the proposal.”

Finance Minister Michael Noonan will be in Brussels on Monday for the eurozone meeting. Taoiseach Enda Kenny, meanwhile, will attend his second EU summit on Thursday and Friday.