When Taoiseach Enda Kenny arrived at the Justus Lipsius building in Brussels to face a scrum of reporters, he had never seemed so prepared.
Without waiting for an opening question from journalists, he was on the offensive: “I’d like to repeat that Ireland’s corporate tax rate is statute-based, is very clear, is very transparent and we do not do special deals with any individual companies in regard to that tax rate.”
It was an uncomfortable day for the Irish presidency of the European Council. Ireland’s corporate tax rate has long been a source of friction in its otherwise harmonious relationship with Europe. When Ireland first assumed the rotating presidency in January, the tax question had threatened to spill on to the European political agenda. Michael Noonan’s first finance ministers’ meeting in January was devoted to the Financial Transactions Tax, a measure opposed by Ireland and several EU countries.
Potential difficulties
The notion of an Irish finance minister chairing discussions on an issue he opposed, indicated potential difficulties that lay ahead for Ireland as it navigated the delicate balance between maintaining a position as honest broker and the impulse to guard national interests that is inherent in the presidency role.
But despite the initial flurry of activity, tax receded from the EU agenda as opposition to the financial transactions tax in particular grew. This week that changed.
Last month's decision by European Council president Herman Van Rompuy to add taxation to this month's summit's agenda always had the potential to present difficulties for the Irish presidency. But it was the US Senate report on Apple and its remarks about our tax regime that turned the focus on Ireland ahead of the summit.
The issue of aggressive tax planning has climbed on to the European political agenda in recent months, mainly as a result of a string of high-profile tax scandals. But the real instigator has been a new tax transparency law introduced by the US last year. The Foreign Account Tax Compliance Act obliges countries to disclose data to the US government regarding the ownership of US assets in foreign accounts. Most European states – including Ireland – have signed up to the proposal, with the effect that most jurisdictions have been obliged to adopt measures that would be required for any new EU-driven information exchange mechanism.
Despite the strong rhetoric from Europe about taking the lead on tax avoidance, EU leaders are in effect piggy-backing on a measure spearheaded by the US. Any move to embrace a global standard on tax disclosure is likely to be based on the US tax compliance act.
There have been numerous moves at a European level to tackle the issue of tax. But attempts to legislate on it at an EU level – such as the financial transactions tax and Common Consolidated Corporate Tax Base which would oblige companies to report their profits on a Europe-wide basis – have made little progress.
After all, a fundamental EU principle is the right of member states to set individual and corporate tax rates. The EU’s code of conduct for business taxation, which dates back to the 1990s, obliges countries to remove any tax measure deemed to be harmful.
While Ireland’s corporate tax rate remains a sovereign issue, any move by the State to negotiate a special deal with an individual country would likely be in breach of the code.
So far the European Commission has accepted the Government's assurance that it struck no specific deal with any corporate entity.
But as the Irish presidency enters its final stretch, Dublin will be hoping the latest controversy won’t damage its push for further debt relief.
