Republic warned on corporation tax

The EU taxation commissioner warned yesterday that Ireland would be disadvantaged if it did not join a group of EU states that favour harmonising their corporate tax base.

Laszlo Kovacs also said he was unhappy that Charlie McCreevy, Ireland's EU commissioner, had attacked the plan so publicly in comments last month. But he said he remained good friends with Mr McCreevy and held out some hope that he would change his mind about his strategy to harmonise the EU corporate tax base.

He said it was important that the internal markets commissioner supported his proposal.

Mr Kovacs is planning to harmonise the hundreds of different elements that are used by states to calculate corporate tax rates. He has already enlisted the support of the current EU president, Austria, to push the strategy and says about 20 EU states support him.

Ireland is one of at least five states that oppose harmonising the corporate tax base. Britain and Estonia also oppose the measure. In speeches made before Christmas, Mr McCreevy warned the plan could harmonise corporate rates by the "back door".

Ireland has been a long-term opponent of harmonising corporate tax rates because it views its 12.5 per cent rate as a key way to attract foreign direct investment.

In an interview yesterday Mr Kovacs said he categorically rejected the idea of harmonising corporate tax rates across the EU, which should remain within the competence of member states.

However, he said the idea of having 25 different ways of calculating corporate tax in the EU distorted the bloc's internal market. He said it also cost companies massive sums of money and hurt the EU's competitiveness.

He warned that Ireland would be at a disadvantage if it chose not join a group of about 20 states that were prepared to harmonise their tax bases. Harmonising the tax base would remove complexities and costs for companies doing business in Europe and make it more transparent for overseas investors, said Mr Kovacs, who added that the door would remain open for Ireland to join states that harmonised the tax base in the future.

Mr Kovacs said he would publish a communication on his plan before June and said he thought the strategy could be presented for approval by EU member-states in 2008.

"I have in mind the least possible number of exemptions to the rules to have a very simple tax base," he said.

Meanwhile, Mr Kovacs said he supported the ideal of levying EU taxes to finance the working of the EU. But he warned it would be very difficult to get agreement on this from member-states. Austrian chancellor Wolfgang Schussel proposed yesterday that financial investors should pay new taxes to finance the EU.