EU finance ministers to scrutinise Irish tax regime

Ireland is likely to face tough questions about its corporate tax regime when EU finance ministers gather today in Vilnius for a two-day meeting, following confirmation that the European Commission has begun a preliminary inquiry into the country's tax practices.

With a three-hour discussion focused primarily on tax avoidance scheduled for tomorrow morning, Ireland, Luxembourg and the Netherlands will be under pressure to defend their tax structures amid claims that all three countries may have offered tax deals to specific companies in breach of state aid rules.

'Transparent'
Dublin moved quickly yesterday to deny suggestions that Ireland had engaged in anti-competitive behaviour, with Taoiseach Enda Kenny insisting that the State was committed to a "transparent" system. Tánaiste Eamon Gilmore said that Ireland's tax regime was open and "statute-based". He said his understanding was that the inquiry was part of an "information-gathering exercise which is done from time to time". "It would be inappropriate for me to comment on the tax affairs of individual companies," he said, adding that Ireland had a "consistent" rate of corporation tax.

Both the Taoiseach and Tánaiste pointed to the Organisation for Economic Cooperation and Development (OECD)’s rejection of the claim Ireland was a tax haven.

Launching the OECD’s economic report on Ireland yesterday, the organisation’s secretary general, Dr Angel Gurría, said Ireland “is not a tax haven and never has been a tax haven”.

The Tánaiste said that Ireland had agreed to plans, laid out at the G8 summit in Co Fermanagh in June, to crack down on international tax evasion. "Tax evasion will be addressed by Ireland through international action," he said.

The European Commission’s preliminary investigation, which has been in the pipeline for a number of months, was prompted in part by claims earlier this year that computer giant Apple profited from a special 2 per cent tax rate offered by Ireland.

'Special advantage'
While the European Union is relatively powerless to control the corporate tax rates of any individual member state, an anti-trust investigation by the competition division of the European Commission could result in countries being forced to recoup money from individual companies that are found to have benefited from what is known as a "special advantage" arrangement.

“We are looking at whether there are certain selective advantages granted to certain companies as opposed to other companies,” a European Commission spokesman said yesterday, stressing that the investigation did not include a consideration of corporate tax rates. He added that the process was at a “very preliminary” stage.

Nonetheless, the revival of the corporate tax issue, which came to the fore in May following the US Senate report on the tax activities of computer giant Apple, comes as Ireland enters a sensitive phase in its negotiations with its European creditors on possible support structures to help smooth its exit from the bailout.

The Netherlands link to the investigation could prove uncomfortable for Dutch finance minister Jeroen Dijsselbloem, who chairs the group of euro zone finance ministers, known as the euro-group.