Treaty does not threaten Ireland's corporate tax rate


LISBON EXPLAINED:SURVEYS PUBLISHED following the rejection of the Lisbon Treaty last year show the public were concerned that the treaty would undermine the Government’s ability to set its own tax rates, writes JAMIE SMYTH

During the first referendum campaign, groups such as Libertas claimed changes proposed in the treaty threatened Ireland’s 12.5 per cent corporate tax rate. Many No campaigners continue to argue the treaty will change the EU’s rules on taxation.

The central argument advanced by No campaigners is that an amendment to Article 93 of the existing EU treaties, which adds the term “to avoid distortion of competition” to the text on tax policy, could provide the basis for other EU states to challenge Ireland’s corporate tax policy at the European Court of Justice (ECJ).

However, this article in the treaty is explicitly confined to “turnover taxes, excise duties and other forms of indirect taxation”. It does not refer to corporate taxation, which is not considered an indirect tax (see Article 113 in the new consolidated EU treaties). In other words the status quo prevails, allowing Ireland to retain a veto over direct tax proposals.

During the negotiations to draw up the EU constitution – the forerunner to the Lisbon Treaty – some member states had pushed to remove the national veto over the tax area to promote further EU integration. But the proposal to move to qualified majority voting was rejected following opposition from Ireland and Britain.

This was one of the reasons why Ireland opposed a major revision of the EU constitution following its rejection by the French and Dutch in 2005. The government did not want any revisiting of earlier proposals for further integration on tax matters.

As Lisbon has no major impact on direct taxation, Ireland’s EU partners readily agreed to provide a specific guarantee covering the area at an EU leaders’ meeting in June. This states clearly the treaty does not make “any change of any kind for any member state” on taxation policy.

Public concern about taxation prior to last year’s referendum was driven by a completely separate initiative proposed by the European Commission, the creation of a common consolidated corporate tax base (CCCTB).

Ireland and several other EU states strongly oppose this plan, arguing that it would inevitably lead to harmonised tax rates and undermine tax competition.

Under existing EU rules Ireland can veto the CCCTB proposal. However, it is possible that a group of member states will be able to move ahead and implement the new system among themselves using a procedure called “enhanced co-operation”. But it should be noted that the Lisbon treaty doesn’t significantly change the rules for this procedure.