Santer assures Ahern on 10% rate

The Taoiseach, Mr Ahern, has received an unequivocal commitment from the EU Commission that manufacturing companies already in Ireland will continue to pay corporation tax at 10 per cent until 2010, while those in the IFSC will pay at this rate until 2005. The Taoiseach said he had received an "absolute, unambiguous commitment" on the subject in a meeting with the EU Commission president, Mr Jacques Santer, yesterday. It is the first time that the Commission has so strongly backed Ireland's demand that the agreement with existing companies on corporation tax rates must be honoured.

Negotiations with the Commission are continuing on tax arrangements for new manufacturing concerns establishing before the introduction of the standard rate of 12.5 per cent in 2005, promised in the Budget. Mr Ahern was in Brussels for his first full meeting with Mr Santer as Taoiseach to discuss a range of Irish concerns from corporation tax to the future of structural and cohesion funding. He later told journalists the meeting had been most productive.

"We now know where we are going for the next few years." The parameters of Ireland's relationship with the EU had been set, he said. On structural funding, he received an assurance from Mr Santer that the Commission will back both a long "soft landing" - a reduction of current entitlements phased down over seven years to 2006 - and continued Irish eligibility for cohesion funds.

Several member-states have suggested that those who join the single currency should lose cohesion funding, and Mr Ahern welcomed Commission support on the issue because of the importance of the fund to crucial Irish infrastructural investment. Commission sources suggest the fund would run from 2000 only until 2003. Following the Commission decision on Tuesday to back a paper by the Competition Commissioner, Mr Karel van Miert, on industrial subsidies - "regional aids" - Ireland will be required to cut the maximum levels of subsidies from 55 per cent to 20 per cent of investment between 2000 and 2004.

Accepting the inevitability of the Commission decision to press for lower levels of state aids throughout the Community, Mr Ahern said that some of the detail still needed to be discussed, most notably the position of the Border counties.

The reduction in the levels of national industrial subsidies permitted by the EU should not lead to different rates being paid on either side of the Border, the Taoiseach said.

"The position would be that you could have regions or counties just north of the Border with a 40 per cent ceiling and regions south of the Border who could have half of that. It does not seem a reasonable position . . . I think they see the logic of our position," he said, insisting that Dublin had no problem about North-South co-operation as long as it was based on the principle of "equity".

It is clear from Mr Ahern's position that it will be necessary to divide the single Irish region into smaller regions for the purpose of assessing state aids, raising the likelihood that rurally-based industries will be able to avail of subsidies at twice the rate of Dublin. Mr Ahern also admitted that in the course of the structural fund negotiations it might also be necessary to subdivide the country. The Commission proposals involve the following ceilings for regional aid:

Most disfavoured regions - 65 per cent in ultra-peripheral areas, 50 per cent where GDP is less than 60 per cent of the EU average, and 40 per cent where it is between 60 and 75 per cent of the average;

Other regions - normally 20 per cent, but 30 per cent in ultra-Nordic regions, and only 10 per cent in regions where the GDP is over the Union average. Mr Ahern also met Mr van Miert and the Irish Commissioner, Mr Padraig Flynn.