Proposed tax changes not a major cause of worry

IRISH officials and the Minister for Finance, Mr McCreevy, are confident that Ireland's low corporation tax regime will not be affected by EU attempts to curb job poaching through competitive tax policies.

EU Finance Ministers over the weekend gave broad endorsement to the principle of a voluntary code of conduct on company taxation to be finalised before the December summit, although diplomatic sources say the code will fall far short of imposing a minimum rate of tax.

Irish harmonisation of its rates should meet one of its principle requirements for non-discimination between indigenous and foreign companies.

Speaking at the informal EU Finance Ministers meeting in Mondorf les Bains on Saturday, Mr McCreevy said the Government remained committed to its election pledge to reduce corporation tax on all trading income to the 10 per cent level currently applicable to the IFSC and manufacturing exports.

The Government would be discussing the phasing in of the new level ahead of 2005 over the next few months, but it was unlikely, Mr McCreevy said, that it would be possible to go the whole way during the current term of the Government.

All member states are agreed - theoretically, at least - on the need to avoid a "beggar thy neighbour" competition for industrial investment.

The Commission's paper to the meeting argues that "tax competition is generally to be welcomed as a means of benefiting citizens and of imposing downward pressure on government spending. But when member states bid for each other's tax bases, competition threatens to harm the general interests."

What is needed, the paper says, is "an orderly and structured decrease of the tax burden".

Commission figures show that tax on labour (income tax and social security payments) has increased from 34.9 per cent to over 42 per cent while those on the other factors of production (capital, self-employed labour, energy, natural resources) have decreased from 45.5 per cent to less than 35 per cent. This trend, the Commission argues, saps job creation.

The problem of what to do about it has bedeviled ministerial meetings for years. Fiscal policy is a national competence subject to unanimity voting at EU ministerial level and countries like Ireland insist that more than notional tax rates must be taken into account.

Mr McCreevy insisted that effective tax rates in other EU states are in reality lower than Ireland's, and they have other inducements too. He cited the case of a "major company" which left Ireland in recent years because, he alleges, it was promised public contracts in its new base.

Any new code, he insisted, will have to adopt a "global" approach.

The Luxembourg Finance Minister, Mr Jean-Claude Junker, was also under fire for his country's failure to tax profits on bank deposits - a major irritant to the Germans. He told journalists that "not only Luxembourg and Ireland are involved". "It is a question for all 15. If, week after week, you are being attacked, you look closely at the imaginative methods others use. "I have no bad conscience, he insisted. The Danish minister, Ms Marianne Jelved, in a radio interview on Saturday deplored the practise of "unfair" tax competition. "Businesses had left Denmark," she said, "for instance, for Ireland. This does not create jobs, it just moves them." (The reference is almost certainly to Boston Scientific.)

But the Belgians, who are also sore about Boston Scientific, are more sanguine. Their minister, Mr Philipe Maystadt, made it clear that a global approach to tax and incentives would be required. "There should be no unilateral disarmament," he said.

With a global, far-reaching agreement impossible to agree, the result is likely to be, sources say, on a code of conduct that falls far short of Commission ambitions.