Government fears that an EU Commission plan to harmonise taxes across member states could have a damaging impact on the Lisbon Treaty referendum campaign have been eased with the publication of a German finance ministry study describing the proposed new tax system as "unworkable". Stephen Collins,Political Editor, reports.
The tax harmonisation plan being pushed by the EU Commissioner for Taxation and Customs Union, Laszlo Kovacs, is due to be considered at a high level meeting in Brussels in April.
The long-term implications of the plan for the Irish economy and the more short-term impact on the referendum campaign had caused serious concern to the Government.
The Common Consolidated Corporate Tax Base (CCCTB) being proposed by the EU Commission is proposing, with the strong support of the French Government, would, if implemented, effectively undermine the State's f 12.5 per cent corporation tax.
Dublin Fianna Fáil MEP, Eoin Ryan, a member of the economics committee in the European Parliament, has welcomed the findings of the study carried out for the German finance ministry by the Centre for European Economic Research based in Mannheim.
"We must remember that Germany is the paymaster of Europe. They are the largest contributors to the annual EU budget. The fact that they have come to the conclusion that common EU taxes is an unworkable idea is very welcome," said Mr Ryan.
The German study found that an EU-wide tax would lead to unfair differences between EU citizens and correction mechanisms would be too difficult to introduce.
Another conclusion was a common carbon emissions tax would lead to inequalities, with poorer eastern European countries having to pay more than rich western nuclear countries like France and Sweden.
The German study will not stop Commissioner Kovacs pressing ahead with work on his plan for a common consolidated corporate tax base, but its chances of ever being implemented are now more remote.
The core of the CCCTB proposal is a new profit allocation formula that will enable member states to apportion the corporate taxes paid by multinationals. Profits would be allocated between countries using measures including size of payroll, value of asset base within a particular country, sales or other measures.
Irish officials oppose the measure, along with Poland, Latvia, Lithuania, Cyprus, Malta and Slovakia. Britain is also opposed in principle, although it would stand to gain revenue.France and Germany support CCCTB.
Commissioner Kovacs appears determined to press ahead with a directive in the autumn, but it will almost certainly be blocked by the unanimity requirement for tax measures. However, despite any block, the commission may attempt to introduce the measure through "enhanced co-operation" which would allow states to proceed on their own.