Commissioner to press ahead with tax harmonisation plan

One of the most powerful members of the European Commission, Günter Verheugen, has vowed to press ahead with a plan to harmonise the corporate tax base in Europe.

He has also questioned the Government's staunch opposition to the proposal, which he believes would cut red tape and prove a major boost to European competitiveness.

"I wonder a little bit where the resistance comes from, particularly from our British and Irish friends, who are normally very much in favour of cutting red tape and making it easier for business to do international trade," he told The Irish Timesin an interview yesterday. "In my view that is not a fully comprehensible situation."

Mr Verheugen, who is a senior vice president and German nominee to the commission, said he considered the proposed corporate tax policy, promoted by tax commissioner Laszlo Kovacs, as a very important simplification for EU businesses.

"With my responsibility for 24 million European enterprises, several million of them doing cross-border business, the fact that we have 27 different tax bases is a problem," said Mr Verheugen, who added that there was clear consensus on this in the commission.

The commission is due to publish next year its proposal to harmonise the corporate tax base throughout Europe, which it insists would remove compliance costs for business and produce a more competitive economy. Mr Kovacs says it has no plans to harmonise corporate tax rates and this would remain the preserve of member states.

Taoiseach Bertie Ahern warned in May that certain people in the EU were trying to "sneak this debate forward" by claiming that the tax base had nothing to do with tax rate harmonisation.

Some politicians were "sleepwalking into the trap", he alleged.

Mr Verheugen admitted there were people in Europe who wanted harmonisation of rates.

"You have people in the EU who believe that it would be better, in order to maintain public revenues at a sustainable level, that it would be better to have a certain harmonisation, even of tax rates," he said. But he added that there was no sense in discussing this idea because it could not work, as unanimity was required among all 27 member states on issues regarding taxation.

Mr Verheugen also signalled that the proposal due next year would be handled in a way that would not inflame tensions in the run-up to an Irish referendum on a new EU reform treaty. "Mr Kovacs will be wise enough to steer the discussion in such a way that it causes no harm and, anyway, we cannot impose it on member states," he said.

Mr Verheugen also defended the independence of the European Central Bank (ECB) against recent attacks by the new French president, Nicolas Sarkozy.

"As a German, I can only tell that it makes no sense to discuss that because it is in the German constitution that the ECB must be fully independent," said Mr Verheugen, who added that ECB independence was an "indispensable part" of EU strategy.

"The fact that we have a very solid economic recovery in Europe has multiple reasons, but one of the reasons is the culture of stability that we have created in the European Union as a result of the introduction of the euro and the independent role of the ECB," he said.

Since being elected in May, Mr Sarkozy has waged a one-man campaign against the ECB, urging it to curb the strength of the euro to protect European exporters.

Mr Verheugen said he was aware of the problems caused by the strong euro and said it was the responsibility of policymakers to make everyone aware of these problems.

"I have already some industries that are beginning to suffer . . . For instance, for Japanese carmakers, the European market is now a cash cow. For other European producers, the American market is a lossmaker," he said.

But, he added, the independence of the ECB to set monetary policy must be protected.