Ministers move to harmonise corporate tax rules

European Union finance ministers have agreed to examine how to harmonise the rules under which corporate tax is calculated throughout the EU writes Denis Staunton in Scheveningen.

The Government has indicated that it will participate in a working group on the issue, despite its opposition to the proposal.

The Minister for Finance, Mr McCreevy, was one of only four out of 25 ministers to express outright opposition to the idea at a meeting in the Dutch seaside town of Scheveningen on Saturday.

The Minister, along with his British, Maltese and Slovak counterparts, fears that harmonising the tax base could eventually lead to harmonised corporate tax rates.

"We are against it," Mr McCreevy said. "Any methodology that would lead to harmonised tax rates, either through the front door or through the backdoor, is against the EU constitution.

EU rules allow member-states to freely set their own tax levels.

The Internal Market and Taxation Commissioner, Mr Frits Bolkestein, acknowledged that opinion among the ministers was divided but said that an overwhelming majority agreed that a common corporate tax base would benefit the European economy.

"It would reduce administrative burdens. It would increase transparency. It goes in the same direction as the international accounting standards that must be adopted before January 1st next year by European companies quoted on the stock exchange," he said.

Employers' organisations in most EU countries support the Commission's proposal, although IBEC and Britain's CBI oppose it.

There was little support at Scheveningen for a call by the French finance minister, Mr Nicolas Sarkozy, for countries that levy unusually low corporate tax rates to have their EU structural funds cut.

Austria's Mr Karl-Heinz Grasser described Mr Sarkozy's proposal as "the wrong initiative" and Germany's Mr Hans Eichel suggested that it was premature.

"It's nonsense to have a debate about harmonisation of tax rates while we do not have a common tax base," Mr Eichel said.

The issue of corporate tax rates has risen to the top of the French political agenda in recent days, with the former Socialist prime minister, Mr Laurent Fabius, threatening to campaign against the EU constitution unless action is taken to prevent French companies relocating to low tax countries in central and eastern Europe.

The Commission is not pressing for harmonised corporate tax rates but Mr Bolkestein argues that companies that operate in more than one EU country would benefit from a common set of rules for calculating tax, even if it is levied at different rates.

Corporate tax has become a sensitive political issue in France as the government, which is trying to tackle a 9.8 per cent jobless rate, tries to stop what the French call "delocalisation", the relocation of firms to parts of the EU where costs are lower.