EURO ZONE DEBT CRISIS:FRANCE AND Germany have revived their clamour for the alignment of Europe's corporate tax systems, an initiative long resisted by Dublin.
In a joint proposal for a toughening of Europe’s budget rules, the two countries called for the escalation of efforts to forge a common corporate tax base and other measures to deepen economic co-ordination among single currency countries.
The development comes months after the conclusion of a contentious stand-off between Taoiseach Enda Kenny and French president Nicolas Sarkozy over Ireland’s business tax policy.
The push in a Franco-German paper for more economic co-ordination is one of the prime differences, with a parallel proposal produced by European Council president Herman Van Rompuy and European Commission chief José Manuel Barroso.
While many elements of the papers are similar, there are concerns in Dublin that Franco-German proposals on tax, pensions and labour market co-ordination go well beyond the scope of current EU law. In Irish circles, the view is that such moves require a “great deal more teasing out” before they could be pursued in any formal way.
As a difficult summit debate looms over EU treaty change with the consequent risk of an Irish referendum, the Government has been insisting it will not be making any concessions on corporate tax in talks on a new crisis response.
For many months Mr Sarkozy blocked an interest rate cut on Ireland’s bailout by insisting that Mr Kenny dilute the Irish tax regime.
The dispute was finally settled in July when the rate was cut in return for Mr Kenny’s pledge to constructively engage in discussions on adoption of a common consolidated corporate tax base.
The common tax base would not harmonise corporate tax rates but it would lessen scope for multinational investors to maximise the profit they record in Ireland to benefit more from the low 12.5 per cent Irish tax rate.
Although Mr Kenny had criticised the tax base plan as the creation of a “back door” to a harmonised tax rate, his agreement to engage constructively in talks on the base came not long after the initiation of draft legislation from the European Commission to create a common consolidated corporate tax base.
While the political negotiation on the legislation is likely to take many years before any part of it is enacted, France and Germany are pushing again for rapid progress.
They listed the corporate tax base as one of three priority areas earmarked to intensify development of Europe’s single market.
To reinforce growth through competitiveness and convergence of economic policy, they called for the creation of a common judicial framework “to allow for faster progress in certain specific areas” such as “the convergence and harmonisation of the base for corporate tax and the introduction of a tax on financial transactions”.
Also mentioned were financial regulation and labour market reforms. According to France and Germany, such initiatives must be compatible with the single market.
Paris and Berlin want automatic sanctions for countries that break EU budget rules, which would require a fully fledged amendment to the Lisbon Treaty.
“When the European Commission establishes that a member has a budget deficit exceeding 3 per cent of GDP, automatic sanctions will be triggered, unless a qualified majority of the euro group decides otherwise,” they said.
The member state would be obliged to conclude with the commission and have approved by the euro group a “European reform partnership” outlining budgetary and structural measures.