Ireland's corporate tax regime is set to come under further scrutiny at EU level after the European Commission made formal proposals to curb tax competition in the 15nation European Union.
The proposed measures include a "code of conduct" for corporate taxation and the idea of a minimum withholding tax on income from savings.
However, last night a Department of Finance spokeswoman said it remained confident that the latest draft of the Monti tax proposals would not cause any difficulties for Ireland. EU states increasingly blame tax competition for a drop in fiscal revenues, particularly unwelcome at a time of tough budgetary discipline to qualify for monetary union, and for job losses as companies are lured away from high-tax countries.
Ireland has been among the states criticised by the other EU members for its corporate tax regime, which is a key incentive to attract overseas industry. The Government has strongly defended the tax regime.
European Taxation Commissioner, Mr Mario Monti, said EU-wide measures were needed to reduce distortion in the single market, to stop serious losses of national tax revenue and to reverse a trend towards increased burden of taxation on labour.
"Today we are realising for the first time the full extent of the damage resulting from the delay in co-ordinating national tax policies in the face of market integration," he told a news conference.
"The aim is to establish a political commitment by the end of the year on a series of measures we have just outlined."
Europe must cut its overall tax burden to enhance its competitiveness and this could be facilitated by increased tax co-ordination, Mr Monti said.
EU states have so far failed to achieve any serious degree of tax co-operation, as such matters require unanimous approval.
The code of conduct on business taxes, by which the Commission seeks to prevent the introduction of any new harmful tax measures, would not be legally binding.
The Commission proposed the creation of a minimum withholding tax on interests on savings or, alternatively, that EU states report such income to foreign tax authorities. The second alternative was particularly aimed at Luxembourg, which does not tax non-residents. Reporting would be limited to interest income paid in EU states to nonresidents from other Union countries, Mr Monti said.
German Finance Minister Mr Theo Waigel, whose country has one of the highest taxes on businesses and individuals in the EU, has led the campaign against harmful tax competition.
