GERMANY: Germany's chancellor, Mr Gerhard Schröder, has called for tax harmonisation within the EU to prevent new member-states from following Ireland's lead in setting low corporate tax rates.
In an interview yesterday with the German business daily Handelsblatt and The Wall Street Journal, Mr Schröder said that EU enlargement made tax regimes such as Ireland's unacceptable.
"When it was confined to one country we could accept it. But if other countries carry on in the same way, it will become a problem," he said.
Ireland's 12.5 per cent corporate tax rate is by far the lowest among the old 15 member-states, but the 10 new member-states have rates ranging from zero in Estonia to 35 per cent in Malta. Germany, where the corporate tax rate is close to 40 per cent, has long complained of what it calls "tax-dumping" in Ireland and fears that some German companies could now move their headquarters eastwards.
Tax issues are decided unanimously in the EU, and Ireland and Britain have made clear that they will veto any move towards corporate tax harmonisation. Mr Schröder said that, if all 25 member-states were unwilling to change, a group of like-minded countries could press ahead with common tax rules.
"We have already harmonised VAT in the EU. I regard it as economically sensible to do the same with income tax and corporate tax. If this is blocked by the veto of individual member-states, we'll just do it with those who want to," he said.
The European Commission rejected Mr Schröder's call for tax harmonisation, adding that tax competition could encourage countries such as Germany to make better use of tax revenues.
"Tax competition is beneficial, it encourages member-states to spend their taxpayers' money wisely. If a member-state, within the existing member-states as of today or new member-states as of tomorrow, wants to apply a low rate of company tax across board then that is its own business," a Commission spokesman said.
The Commission said it had no intention of proposing harmonised corporate tax rates and chided Mr Schröder for singling out the issue on the eve of enlargement.
"German companies are going to benefit enormously from enlargement in terms of access to new markets. To focus on this individual issue is perhaps to give a misleading impression of the impact of the EU enlargement upon German businesses," the spokesman said.
The draft constitutional treaty currently being negotiated under Ireland's EU presidency calls for the abolition of national vetoes on a small number of tax issues, including cross-border tax fraud. Britain has made clear, however, that it will not sign up to the treaty unless this proposal is removed.
Mr Schröder said yesterday that the constitutional treaty would allow a group of countries to press ahead with tax harmonisation if all 25 did not agree.
"The EU constitution allows for enhanced co-operation among those countries that are willing. We could do that for tax policy. We want tax competition but we must avoid tax dumping," he said.
