The thrust of European Union tax policy is to reduce tax rates through harmonisation, not to raise them, the EU Commissioner with responsibility for internal markets, Mr Mario Monti, said yesterday.
On a visit to Dublin he stressed that the Commission did not object to "fair" tax competition among member-states, but merely "harmful tax competition".
He also said he was aware that Irish banks were charging mortgage holders more than in any other euro zone country, and that individual citizens were not fully benefiting from the single currency.
Mr Monti said the working group set up to monitor the December 1997 Code of Conduct for business taxation would make its final report to EU finance ministers in November. The Government has come under criticism from some other EU states because of its plan to phase in a 12.5 per cent corporate tax rate. Irish officials have defended the boon to industry, pointing out that many other EU governments use a range of similar incentives that are tax breaks in all but name.
Government sources said after a meeting between Mr Monti, the Taoiseach, Mr Ahern, and the Tanaiste, Ms Harney, that the 12.5 per cent rate was "secure".
Earlier, the Taoiseach, Mr Ahern, assured IFSC executives that a 12.5 per cent corporation tax regime would be in place by 2005 despite any opposition. Mr Ahern, addressing a conference on the development of international financial services, said the 12.5 per cent rate was not an exercise in unfair competition, rather "a continuation of the sensible corporation tax policies pursued by Ireland since the 1950s".
He said harmonisation was a good idea if it was "downwards".
Mr Monti said indirect taxes - such as VAT and excise duty - were a more conspicuous impediment to intra-EU trade than direct taxes, and that a high degree of harmonisation was necessary in this area. While a pan-European rate might not be feasible in the short term, he added, the current VAT range, from 15 per cent in Luxembourg to 25 per cent in Denmark and Sweden, would have to be narrowed.
