IRELAND’S closely-guarded corporate tax regime is coming under pressure again as Germany and France press for a “competitiveness pact” to align core economic policy in the euro zone.
There were sharp exchanges on the issue at an EU summit in Brussels yesterday between Taoiseach Brian Cowen and French president Nicolas Sarkozy, long a critic of Ireland’s 12.5 per cent corporate tax rate.
In the course of a lunch discussion of measures first proposed by German chancellor Angela Merkel, the strained atmosphere between leaders was described as a “bloodbath at times” by a European diplomat. “Mr Sarkozy said: ‘I have saved you, I went to parliament on your behalf’,” the diplomat said of Mr Sarkozy’s exchanges with Mr Cowen. “Sarkozy criticised the Irish choice of the American model. Cowen made clear the toxic system was not due to the American model.”
From an Irish perspective, the going at the summit was said to be “tough”. The Merkel-Sarkozy proposal, elements of which are opposed by some of their strongest EU allies, would operate as an intergovernmental body outside the institutional framework of the EU treaties.
“Cowen was saying: ‘Do not turn your back on the legal framework’, essentially a defence of the community method,” the diplomat said.
Euro zone leaders will gather at a special summit to discuss the Franco-German plan when the Dáil reconvenes on March 9th after the election. Although a euro zone summit on March 4th or 7th was mooted, Mr Cowen said this meeting will now take place “after the 9th”.
While that leaves scope for Mr Cowen’s successor to take part in the debate, EU leaders want to finalise all arrangements at a further summit on March 24th and 25th. European diplomats concede such timing is not to Ireland’s advantage.
Dr Merkel, who believes there should be pan-euro zone rules on corporate tax, has portrayed the competitiveness pact plan as Germany’s basic price for measures to reinforce the euro zone rescue scheme.
After the summit broke up last night, Dr Merkel told reporters that Germany wants to “initiate steps” on corporate tax. While French officials let it be known earlier yesterday that Paris wanted the Franco-German pact to embrace minimum corporate tax rates in the euro zone, Mr Sarkozy adopted a difference stance last night at a press conference.
“This is not about denying the particulars of certain countries, but we should agree on the same tax base,” he said.
Mr Cowen indicated he took this to be a reference to long-planned proposals for a common EU corporate tax base, something Ireland has resisted for years. Although Mr Cowen said “no proposal” was made to the summit on corporate tax, he said he defended the Irish rate.
“I availed of the opportunity once again to set out the importance that we attach to our 12.5 per cent rate of corporation tax rate as a central plank of our drive for competitiveness and as an indispensable part of our strategy for recovery.”
An Irish official circulated a document showing that Ireland’s corporate tax take as a percentage of total tax revenue was more than three times higher than the equivalent German figure in 2008 and significantly in excess of the French figure.
Mr Cowen would not say if any link was made between Irish concessions on tax and the prospect of lower interest on Ireland’s bailout loans.
Although the summit was due to discuss measures to expand the scope and scale of the euro zone bailout fund, it was dominated by the Franco-German proposal. In addition to business tax measures, the plan would set constitutional debt limits throughout the euro area, harmonise the pension age and ban index-linked wage settlements.