CORPORATE TAX:THE STAGE has been set for a confrontation between the Government and Brussels over Ireland's corporate tax regime after EU economics commissioner Olli Rehn said no tax measures should be ruled out as Dublin embarks on a drastic new austerity drive.
As the cost of the banking bailout approaches €50 billion, Mr Rehn also made it clear that Ireland will not continue as a “low-tax” jurisdiction in the next decade.
The commissioner’s remarks to reporters yesterday come as the Government faces pressure to produce a four-year plan with specific budget and reform measures to bring a record deficit under control by 2014.
The debate has brought attention again to Ireland’s 12.5 per cent corporate tax rate, a key element of the Government’s pro-business industrial policy but long a bone of contention with other European countries.
Mr Rehn said the Government should exclude no tax policy changes from its consideration when asked about a report in Le Monde, the French daily paper, which said that Brussels wants the Government to increase the 12.5 per cent rate.
“You ask about tax increases, I do not want to take any precise stand on an issue which is for the Irish Government and the Irish parliament to decide, but I would not rule out any option at this stage,” he said.
“It’s a fact of life that after what has happened, Ireland will not continue as a low-tax country, but it will rather become a normal tax country in the European context.” The Government insisted that there would be no change to the policy, although it said Minister for Finance Brian Lenihan has acknowledged that other taxes will form part of the solution to the State’s fiscal problems.
“With regards the corporation tax rate, the Government has always made it clear that the corporation tax rate will remain at 12.5 per cent as set out in the programme for government,” said a spokeswoman.
“This commitment is protected, in an EU context, by the principle of unanimity in taxation matters. That was further enhanced by the insertion of a legal guarantee in the Lisbon Treaty. The 12.5 per cent corporation tax rate is a cornerstone of the Irish industrial policy.”
However, a well-placed European official confirmed that the European authorities believe it will be exceptionally difficult for the Government to avoid increasing the taxes as its makes efforts to bring the budget deficit below the EU’s 3 per cent limit by 2014.
“We’re not telling Ireland to do this or do that. But under the current circumstances we cannot figure out how they’re going to meet the targets without important measures on the revenue side, including corporate taxation,” the official said. “It’s up to the Irish authorities to present the multi-annual plan. We cannot hold the pen for them.”
German MEP Markus Ferber, who has campaigned against the Irish corporation tax regime, said the rise to 32 per cent in the budget deficit meant the time had now come to increase the rate.
“Because you have the lowest taxes in that area so you will not lose competitiveness if you are increasing it a little bit,” said Mr Ferber, whose Christian Social Union party is aligned in government with Chancellor Angela Merkel’s Christian Democrats.
Belgian finance minister Didier Reynders, whose country holds the EU’s rotating presidency, said there was no request, at a series of finance ministers’ meeting in the past two days, for Ireland to take any specific taxation measures.
Such decisions were national ones, he said. “For a government like Ireland it’s important to go to a fiscal consolidation but also to pay attention to growth, to jobs creation and to the social welfare in the country,” he added.