Hope for Ireland as tax harmonisation plans left off agenda

IRELAND’S desperate bid to save its rock bottom corporation tax being blasted out of existence by the Franco-German alliance received a glimmer of hope last night at the euro crisis summit.

Tax harmonisation plans were noticeably absent from the rescue plan put forward by the EU’s top officials, as Enda Kenny again pledged not to surrender the 12.5% rate.

The incentive to entice companies to Ireland had looked doomed after a joint communique from Paris and Berlin explicitly called for a tax consolidation measures as a price for saving the eurozone.

The letter issued to the European Council by Nicolas Sarkozy and Angela Merkel, strongly pushed for ending what the French in particular view as an unfair advantage used by Ireland to undercut its jobs market.

“We need to strengthen growth through competitiveness and the convergence of economic policies of at least the members of the euro area.

“To reach these objectives a new legal framework fully compatible with the internal market should be created to allow more rapid progress in certain specific areas, such as... the convergence and harmonisation of the corporate tax base and the introduction of a tax on financial transactions,” the two leaders insisted.

However, the Taoiseach raised the stakes by insisting the rate was safe-guarded if any referendum was to be passed in Ireland. Though the threat was not overt, his message was clear to other EU ledaers fearful Irish voters will again show resistance to integration.

Despite Mr Kenny’s insistence he will defend the 12.5% to the hilt, any threat by Dublin to use its veto in such a matter is viewed in Brussels highly unlikely given the country’s dependence on the EU and IMF to provide emergency loans to keep public services operating after the collapse of Irish economic sovereignty in November 2010.

European Commission President José Barroso appeared to fire a warning shot across the bows of leaders like Mr Kenny and Britain’s David Cameron, warning them against following a narrow national interest.

“What I expect from all heads of state and government is that they don’t come saying what they cannot do, but what they will do for Europe. What the world expects from us is not more national problems, but European solutions,” he said.

But the fact the tax issue was left out of the agenda drawn-up for the crunch two-day summit aimed at finally sorting out the eurozone crisis is seen as, at least, buying some time for the Irish position.

Mr Sarkozy has long been a fierce critic of Ireland’s “unfair” tax rate and wants monthly meetings of eurozone leaders to address this and other key financial issues for as long as the crisis continues.

While the Sarkozy/ Merkel letter referred to a common tax base, rather than a consolidated one — which is a method of calculating tax due that Ireland believes would seriously discriminate against it — the move was seen as an opening gambit to strip Dublin and other smaller countries of their competitive edge.

Dublin had hoped it would be able to fight its corner with the backing of Britain, which as a major world economy has far more clout in the EU, but with the union looking set to split into effectively two groups with a core inner eurozone and outer non-single currency group London would in future have far less influence over areas it considers important, such as tax.

Speaking at a meeting of European centre-right leaders ahead of the Brussels showdown, Mr Kenny insisted he had “made it very clear” where Ireland stood on corporation tax.

“We need decisiveness and clarity and simplicity from European leaders. It’s important that decisions be made and that they be implemented.

“New rules alone will not be enough to bring stability to the eurozone, we have to take clear decisions now. We’ve got to be able to prove and demonstrate that when we make decisions we are prepared to stand by those decisions,” he said.