Lisbon explained - part 6:It is clear that some states want more integration in the tax field. But Lisbion makes no significant amendments to articles dealing with corporate tax policy, writes Jamie SmythEuropean Correspondent
FEARS THAT the European Commission, backed by France and Germany, is preparing an all-out assault on Ireland's 12.5 per cent corporate tax rate in the autumn dominated the early debates on the Lisbon Treaty.
No campaigners such as Libertas argue that the treaty weakens Ireland's ability to prevent further integration in the tax area, while Yes campaigners say the issue is a red herring. They insist the Lisbon Treaty doesn't change the decision-making rules on taxation, a position that has been confirmed by the Referendum Commission.
It is clear that some states want more integration in the tax field. French finance minister Christine Lagarde confirmed last month that Paris would promote a draft commission proposal to harmonise the way EU member states compute their corporate taxes during its upcoming six month presidency of the Union.
Germany is also interested in pursuing the controversial initiative, which it believes would boost the competitiveness of European companies by reducing the cost of doing cross-border business. The author of the initiative, EU tax commissioner Laszlo Kovacs, says he will publish his proposal for a common consolidated corporate tax base (CCCTB) in the autumn. Ireland and several other states strongly oppose it, arguing that it would inevitably lead to harmonised tax rates and undermine tax competition. But Lisbon contains no significant amendments in the field of taxation, which until now has guaranteed each state a veto over new proposals.
Libertas claims that an amendment to Article 93 of the existing EU treaties, which adds the term "to avoid distortion of competition" to the text on tax policy, could provide the basis for other EU states to challenge Ireland's corporate tax policy at the European Court of Justice.
However, the article is explicitly confined to "turnover taxes, excise duties and other forms of indirect taxation". It does not refer to corporate taxation, which is not considered indirect tax. (see Article 113 in the new consolidated EU treaties).
Lisbon makes no significant amendments to articles dealing with corporate tax policy, so the status quo prevails: Ireland will retain its veto over any new proposals.
The Government justifiably claimed the defence of the status quo as a major success during the negotiations on the EU constitution and its successor, Lisbon. During the discussions at the convention on the future of Europe and the intergovernmental conference to prepare the EU constitution, there was intense debate on the issue with some delegates arguing that further European integration of tax should by introduced. In the end Ireland and its allies won the argument and confirmed the position that they cannot be forced to implement a tax measure without their consent.
This was one of the reasons why Ireland opposed a major revision of the EU constitution following its rejection by the French and Dutch in 2005. The Government was deeply concerned that reopening the delicate institutional balance achieved in the negotiations on the draft constitution could have led some states to revisit earlier proposals for further integration on tax matters.
But while Ireland and other states can't be forced to implement new tax measures neither can they prevent their European partners from introducing them for themselves. Aware that all 27 EU states are very unlikely to agree to sign up to a CCCTB proposal, Kovacs has already floated the idea of using an instrument in the EU treaties known as "enhanced co-operation" to pursue the idea.
This provision, first introduced in the Treaty of Amsterdam (1999), and revised in the Nice Treaty (2003), has never been used. "Enhanced co-operation" would allow groups of EU states to move ahead with closer integration among themselves in certain fields where unanimity cannot be reached. The other EU states would stay outside the advance group and not take part in the new measure.
Until the ratification of the Nice Treaty, Ireland could have vetoed any proposal by a group of states to move ahead on their own with more tax integration within the EU framework. But this veto right was removed in the Nice Treaty.
The Lisbon Treaty makes few substantial changes to "enhanced co-operation" except to change the number of member states required to pursue it. Now nine member states will be required, up from eight.
Groups such as Libertas argue that enhanced co-operation could be used to undermine Ireland's corporate tax policy. They say that if a group of states moves ahead on their own with CCCTB they could establish a system that would introduce a "sales by destination" formula, whereby a portion of the corporate tax generated from the sale of a good would be given to the state where it is sold rather than produced. Libertas says this would reduce the corporate tax take by the Irish exchequer.
The Government argues that this is an hypothetical argument and that the Lisbon Treaty clearly states that enhanced co-operation can only be used as a "last resort" and in conformity with the rules of the internal market. It believes that attempts to proceed with a CCCTB would be invalid under such grounds.
What is clear, however, is that the Lisbon Treaty doesn't change the rules on enhanced co-operation or on corporate tax. Tax experts also suggest that groups of EU member states can already club together and try to renegotiate their bilateral tax treaties with Ireland outside the EU framework to create their own common consolidated tax base.
Certainly, Paris and Berlin will be pushing for integration in the tax field in the months and years ahead. But voting against the Lisbon Treaty won't change the EU rulebook on corporate tax. Ironically, a No vote may only serve to weaken Ireland's political influence in Brussels and make it more difficult for the Government to defend its tax sovereignty.