A debate over corporate tax harmonisation is set to highlight a rift between old and new European Union states at a meeting of finance ministers later this week, EU diplomats said today.
France and Germany, faced with harsh competition from low-tax countries in Eastern and Mediterranean Europe, have accused the new members of "tax dumping" and are pushing for greater convergence of corporate tax levels.
This has caused resentment among EU newcomers, which say they need to keep tax rates low to attract foreign investors. They have the support of Britain, which backs tax competition.
French Finance Minister Mr Nicolas Sarkozy ruffled feathers when he recently suggested to cut EU aid to new EU states with tax rates below the EU average.
Corporate tax rates are set at around 30 per cent in Western Europe but average 20 per cent or less in the 10 new members. In Ireland the corporate tax rate is 10 per cent.
The European Commission will present ministers with a draft plan to introduce common rules on the corporate tax base to improve Europe's competitiveness.
A Commission survey published today showed companies would benefit from the introduction of common rules.
Given the impossibility of reaching unanimity on such a difficult proposal, the Commission will propose that only a core group of EU states adopts the common tax base under a recently introduced procedure known as enhanced cooperation.