ICTU calls for corporate tax harmonisation

 

Mark Hennessy,

Political Correspondent

The Government, which took over the European Union Presidency yesterday, must abandon its opposition to EU corporation tax harmonisation, the Irish Congress of Trade Unions has warned.

The Fianna Fáil/Progressive Democrats' determination to hold onto Ireland's 12.5 per cent corporation tax rate is deeply unpopular with some other EU states, though it has been cleared by the European Commission.

In a submission to the Government's Enterprise Strategy Group, ICTU said low business taxation would not protect the Irish economy from increasing economic pressures caused by globalisation.

In fact, they could make the situation worse. "The Government has made it clear that it will 'die in a ditch' rather than accept any proposal from Europe on tax harmonisation which might interfere with our low corporate tax rate," said ICTU.

The Government should instead negotiate now with fellow EU states to agree a band of corporation tax rates to apply in the EU, depending upon a country's economic development and peripherality, it argued.

Backing limited EU tax harmonisation, the Congress said there is nothing stopping countries such as Poland, Hungary and the Czech Republic, which will join the EU in May, from undercutting Irish rates.

Demands for tax harmonisation were on the table during the aborted December EU Summit in Brussels, though the negotiations broke down before they were discussed in any length.

However, it will rear its head again during the six-month long Irish EU Presidency, since Mr Ahern will have to produce a report for the Spring EU Summit outlining the issues still dividing the member-states.

"At the end of the day, our judgment is that the Europeans will not wear tax competition indefinitely, and it might be better to negotiate a deal now rather than have it forced upon us," said ICTU.

Under the changed system favoured by ICTU, companies could still end up paying a net 12.5 per cent rate, though they would have to substantially increase their investment in research and development to qualify.

Acknowledging that corporation tax helps to attract foreign investment, ICTU asked: "But is 12.5 per cent the critical level? Why did we need to go below 16 per cent? Would foreign direct investment still come at 20 per cent?

"At present it is not just foreign direct investors who benefit. Banks, hotels and builders all gain," said the Congress document, which is one of a number to have been lodged with the Enterprise Strategy Group.

Increased tax credits for research and development would allow the State to apply it "to companies that we really wanted to form part of our industrial base and to put down roots here", it believed.

The weaknesses in the Republic of Ireland's industrial policies are beginning to show as competition from eastern European countries and, just as significantly, India increases.

The report states that up to now, Ireland has not developed world-class R&D. "While we boasted of the PhDs, engineers and technicians which Ireland could supply, the work which most of them did was not very high up the value chain.

The Republic must establish "high-quality cutting edge research projects" over the next two decades in industries in which Ireland can have, and hold, a comparative advantage.

"Finland, a small country on the periphery of Europe with a similar population and resources, has achieved this with companies such as Nokia, a global leader in mobile phone technology."

Ireland's ability to develop new products and ideas is weak, the ICTU document stated. "We have not invested enough in science and technology and have been content to let multi-nationals import their technology and ride on their success."