State should protect corporate tax rate to retain US firms, says envoy

IRELAND NEEDS to keep fighting to retain its 12.5 per cent corporation tax rate if it wants to remain attractive to US companies, American ambassador to Ireland Dan Rooney said yesterday. On Tuesday, tax harmonisation was put back on the euro zone’s agenda following the European summit meeting.

“If the corporate tax [rate] is raised then these companies will look at the situation and say, ‘well, is it too high for us?’” he said.

Mr Rooney, who was speaking in Mullingar as part of his tour of Ireland, said US businesses would be closely watching corporate tax rates in the euro zone, “because there are many other countries, Poland particularly, that are interested in getting American companies to be there”.

On Tuesday, German chancellor Angela Merkel and French president Nicolas Sarkozy presented bilateral plans for fiscal harmonisation as part of their efforts to save the euro zone. However, the new plan, which also proposes harmonising rates, focuses on a common corporate tax base (CCTB) between the two countries. This is unlike tax consolidation across the entire euro zone, as suggested under the Common Consolidated Corporation Tax Base (CCCTB) proposals in March.

Tax experts are keen to downplay this latest threat to Ireland’s 12.5 per cent rate. “We don’t believe that Ireland’s effective corporation tax rate will rise anytime in the next decade,” Brian Devine, chief economist with NCB Stockbrokers, said yesterday.

The new proposals will see both France and Germany aim for a common tax base and rate by 2013. However, this timeframe has been deemed “ambitious” by Mr Devine, while Shaun Murphy, head of tax with KPMG, asserted that the proposal is little more than a “grand statement”.

“This would appear to be a challenging timetable given the starting point of two countries with quite different corporate income tax systems and different policy approaches to the use of tax incentives targeted at corporate taxpayers,” Mr Murphy said.

Moreover, harmonising the tax bases of both France and Germany would only represent a “modest degree of alignment of overall tax policy” he added, due to the reliance of both countries on other sources of taxes.

For Ireland, which has agreed to “constructively engage” on the wider CCCTB proposals, the new bilateral fiscal harmonisation effort is unlikely to pose a real threat. “If Ireland were strong-armed into a CCTB this would have far less impact than the CCCTB, which would involve the reallocation of profits to other member states based on sales, labour and fixed assets,” Mr Devine said. In any case, “it is far from certain that it will be implemented at all,” he added.