THE GOVERNMENT has told the European Commission that imminent moves to introduce pan-European rules on the taxation of business profits will seriously damage Ireland’s recovery prospects and threaten further budget cutbacks and tax increases.
The EU executive plans to publish draft laws in March to develop a common European formula for the calculation of corporation tax, measures the Government has vowed to oppose because they could dim the lustre of Ireland’s generous business tax regime.
In an escalation of its campaign against the initiative, the Department of Finance has warned in a private submission to taxation commissioner Algirdas Semeta that the measures would shrink the Irish economy, reduce employment and curtail foreign direct investment.
Such arguments are significant as economic growth in Ireland, which the commission questioned only weeks ago, is crucial to the repayment of EU-IMF bailout loans and the rest of the national debt.
Furthermore, the Irish submission said the legislation had the potential to threaten hundreds of thousands of jobs throughout Europe and to shrink the EU economy generally.
The department asked accountants Ernst Young in 2008 to examine moves to create a common consolidated corporate tax base (CCCTB). Mr Semeta received its paper two days ago.
The CCCTB policy would not harmonise corporate tax rates but would weaken tax competition by reallocating tax receipts to countries in which revenues are received. This would lessen scope to maximise the profits that companies record in Ireland, one of the key attractions of the present system, lessening the benefit the Government derives from its low 12.5 per cent corporate tax rate.
The re-emergence of the debate on a CCCTB comes only weeks after the Government fought off pressure from France and Germany to increase the corporate rate as part of the EU-IMF rescue plan.
Seen by The Irish Times,the department's 79-page paper states that all EU countries except France, Belgium and Spain would lose out if a mandatory or a voluntary CCCTB is introduced and suggested Ireland would rank among the biggest losers.
The Irish economy could contract by between 1.5 per cent and 2 per cent, employment could fall by some 1.5 per cent and foreign direct investment could fall by 5 per cent.
In addition to Ireland, other countries that would lose out in the initiative included Germany, Denmark and the Netherlands. In a mandatory CCCTB system, they would lose both corporate income tax revenue and employment.
