Merkel's coalition partner opposes CDU line on corporate tax corridors


THE GERMAN chancellor’s coalition partners are in disagreement over her proposal for corporate tax “corridors” in the EU to eliminate what the German leader sees as market distortion and unfair competition in the euro zone.

Angela Merkel’s Christian Democratic Union (CDU) welcomes the idea as “absolutely in line” with party thinking, but her pro-business Free Democrats (FDP) coalition partner has poured cold water on the proposal.

The dissent emerges just hours after the ruling coalition agreed a joint paper ahead of next month’s euro zone reform summit in Brussels. The paper, seen by The Irish Times, provides the political basis on which Dr Merkel and her officials will negotiate in Brussels.

As well as a blanket ban on any kind of “euro bonds”, the paper insists that the permanent bailout mechanism must be part of a larger package in which “budget discipline is improved through consequential intensification of the stability and growth pact”.

The paper calls for non-specified “measures to increase competitiveness and economic co-ordination” and “steps to create debt brakes in the euro zone” – mirroring a new German constitutional limit on borrowing.

It also makes the case for an “EU-wide finance market tax to reduce the burden on national budgets as a result of the financial market crisis”.

Although the document makes no specific reference to new corporate tax rules or changes to the common tax base, leading CDU figures insist it is still on the table – even if they admit abandoning plans to force changes on individual tax rates.

“A common tax base for corporate tax is a helpful project, on which we in Europe will continue to work with dedication,” said Dr Michael Meister, finance market spokesman of the CDU. “A [tax] corridor allowing fair tax competition is completely in line with the views of the parliamentary party.” However, the FDP is less happy with Dr Merkel’s proposal, made in a discussion on Wednesday night.

“Differences in tax rates are part of the competition between states,” said Dr Volker Wissing, FDP finance market spokesman.

A country that is financially dependent on others posed a temporary exception to the rule, he said, and donor countries had “every right to ensure the country makes the most efficient use of its own sources of income”. However, the FDP had little interest in tax intervention or “corridors”, as proposed by the German leader.

“Corridors for particular types of taxes may be helpful in an emergency situation but they are no solution,” Dr Wissing added.

“What’s more important is that the competition between individual countries adjusts so that the inner-European competition can take place on an equal footing, including on taxes.” The smaller coalition partner has also dismissed CDU proposals to withdrawing voting rights of states in breach of a beefed-up stability pact.

“Germany’s clear ideas for the future of the shared currency must take into account the views of partner countries,” said Dr Volker Wissing.

“A Europe based on the power principle won’t work. Europe only has a future as a union.”