EU to woo resistant states on tax plan

European Union (EU) tax commissioner Laszlo Kovacs said he would try to persuade the republic and Britain to support his plan for a common corporate tax base yesterday.

But he acknowledged that there was strong opposition to the controversial proposal to harmonise the tax base, which is currently supported by just 12 member states.

He said 10 states were "hesitant" and three states were openly hostile to his plan, which he acknowledged was "a very ambitious one".

The three states that have declared that they are staunchly opposing the proposal are the republic, Britain and Slovakia, which has introduced a flat tax of 19 per cent that has been successful in attracting large amounts of foreign direct investment.

Several other eastern European states such as Estonia and Lithuania also have serious concerns about the proposal, which would harmonise the hundreds of different elements that are used by states to calculate how much corporate income is taxable.

Launching a progress report on the commission's strategy to introduce a common consolidated corporate tax base, Mr Kovacs said it was a "challenging exercise" and that if it was to be achieved a stronger commitment from states was required.

He said it was not his intention to create a common EU tax rate as feared by certain states.

He warned that some states could go ahead and harmonise their tax base on their own leaving the republic and Britain outside the plan.

"If by the end of 2007 we clearly see that there will be no unanimous agreement then we will start to elaborate further enhanced cooperation," said Mr Kovacs, who urged states to support his plan.

Enhanced cooperation is a system authorised under EU treaties that enables breakaway groups to push ahead with measures on their own.

"We will leave the doors open for the UK and Ireland," he said. "I hope that these two states will realise there is no harm in the application of the common tax base."

Mr Kovacs said the commission had also decided to make the common tax base an option for companies rather than making it compulsory.