Ministerial moves to avert corporate tax threat

Two senior Ministers are attempting to head off a new threat to the Republic's corporate tax regime and will meet the EU Competition Commissioner, Mr Karel Van Miert, in Brussels tonight. The Tanaiste and Minister for Employment and Enterprise, Ms Harney, and the Minister for Finance, Mr McCreevy, will meet Mr Van Miert, amid clear signals that the Competition Commissioner is under pressure to examine Ireland's corporate tax system.

Both Ministers are also expected to meet the Irish Commissioner, Mr Padraig Flynn.

Yesterday Finance Ministers here gave broad approval to a code of conduct aimed at curbing tax competition between member states.

But the code's provisions have been sufficiently neutered on the corporation tax front not to pose a threat to Ireland, diplomatic sources said.

The voluntary code, due to be approved finally in December, only provides for harmonisation of corporate tax rates within countries, although the Commissioner for the Internal Market, Mr Mario Monti, admitted yesterday that some member states still wanted to extend that to rates between countries.

With the Government due to end the special status of the IFSC and of manufacturing exporters by phasing in a common rate - either 12.5 per cent or 10 per cent - for all companies, it will have no problem meeting the internal requirement. And diplomats here were confident that they could block any external one.

Yesterday, Irish, British and German ministers resisted pressure to accept that the two-year review of the code would specifically focus on any one issue - to do so, they said, would be to prejudge the issue.

But sources in the Commission suggested that another front may be about to open up. The special tax rates were regarded here as "state aids" and were also therefore subject to review by Mr Van Miert. He has come under increasing pressure from the German and Danish governments, and his own in the wake of the Renault closure at Vilvoorde, to clamp down on what are seen as unfair subsidies.

The regimes in the IFSC and for manufacturing exports have Commission aid approval until 2005 and 2010 respectively. Ms Harney and Mr McCreevy were understood to be seeking to forestall any review of such provisions ahead of the promised phasing in of a single rate.

Mr McCreevy said that they were not "overly concerned" about the Commission's intentions. "We expect the discussion to centre on getting to that single rate and the situation of companies setting up in the interim," he said.

Ministers yesterday also received a paper from the Commission arguing that German and Dutch concerns over their net contributions to the EU budget were misplaced.

The paper argues that "the contributions of the member states to the EU budget are roughly proportional to their GNP and they ought, therefore, to be seen as broadly `fair'." When the receipts of member states are taken into account the net picture is somewhat different, but is the inevitable product of deliberate policy decisions, the Commission argued. Comparisons of net contributions were, therefore, not valid, it said.

Speaking to journalists, the German Finance Minister, Mr Theo Waigel, rubbished the Commission's report and claimed that if Germany had the equivalent of the British budget rebate its convergence figures would be as good as the British. He again insisted that cohesion countries which entered the single currency should lose cohesion funding.