GERMANY:GERMANY HAS admitted defeat in its ambition to see corporate tax rise in Ireland and confirmed it is opposed to EU tax harmonisation.
In recent weeks, senior German officials viewed Ireland’s economic difficulties as a chance to remove this corporate tax thorn in Berlin’s side under the guise of shrinking Ireland’s banking sector to a healthy size.
Officials floated the idea of increasing the fiscal burden on banks through an additional bank levy, thus allowing Dublin leave untouched the corporate tax rate – on paper at least.
Those efforts came to an end yesterday when German finance minister Wolfgang Schäuble said he had been “convinced” by the case made by the Irish Government for retaining its existing corporate tax rate.
“How Ireland makes its tax decisions is to be respected as I would want German tax decisions to be respected,” said Mr Schäuble yesterday. “We don’t want to communitarise everything; tax is not a community concern and will not be communitarised.”
After floating the idea of a bank levy, German officials conceded yesterday that it was a non-starter.
EU competition lawyers had pointed out that, by targeting Ireland’s financial sector with a special tax, member states would provide a de facto subsidy to companies not expected to pay the levy.
A day after reaching broad agreement in Brussels on rules for future euro zone bailouts, Mr Schäuble praised Ireland’s austerity ambitions and warned that he expected all future administrations in Dublin to honour the deal.
“Ireland has to create circumstances in which there isn’t senseless waste of these loans, that’s the way things are when a country cannot get out of a situation of its own accord,” he said. “We are not forcing anything on the Irish . . . nor are we wasting money on those who have acted less sensibly. We are doing this because a successful European Union, politically and economically, is in the interest of Germany . . . and Ireland.”
Despite Mr Schäuble’s final word on corporate tax, some German officials refused to accept the battle is over, suggesting that Irish officials have agreed to review it in ongoing talks with the EU-IMF delegation.
There is an understanding among German politicians that a slow rise in corporate tax would be desirable, but only if the proposal comes from Dublin.
“Ireland’s goal has to be to move from the rescue measures back to thinking about how, after a period of non-sustainable growth, how one can ensure sustainable growth,” said Dr Michael Meister, financial spokesman of the ruling Christian Democratic Union (CDU) in the Bundestag.
German officials described Sunday’s post-2013 deal in Brussels as a policy success even though, for the second time in a month, it failed to push through its demand for an automatic procedure, free from political influence.
After sacrificing its demand for an automatic procedure to deal with breaches of the stability pact, Berlin now agrees that future euro zone bailouts need to be dealt with on a case-by-case basis.
However, German officials remain confident that the new rules they have pushed through will, in line with Chancellor Angela Merkel’s demands, make euro zone members force private investors to accept losses on their investments from 2013.
One senior official said: “No haircut, no money from Europe.”
“The involvement of the private sector is new,” said Mr Schäuble yesterday. “The deal wasn’t about somebody winning or losing. In the end our common currency was the winner.”
The Irish deal in Brussels was overshadowed in the German media yesterday by the WikiLeaks revelations and the collapse of the state government in Hamburg.
The Handelsblatt daily said the Irish deal underlined that EU leaders “still have no convincing concept for the serious debt crisis” and were racing to put out one fire after another.
The influential Bild tabloid dedicated just four sentences to what it called the “€10 billion German guarantee for Ireland”. Other papers were almost optimistic in their editorials, describing Sunday’s deal as the beginning of the end of Ireland’s crisis.
The Süddeutsche Zeitung described the loans as “nothing more than emergency assistance”.
“Ireland’s banks are kaputt and its State finances are stressed, but it doesn’t need a complete overhaul like Greece,” said the influential Frankfurter Allgemeine. “That gives reason for hope.”