Tuesday, 20 January 2009

EU shelves tax plan for fear of unsettling Irish voters

THE EU has quietly shelved a plan to harmonise the corporate tax base across the union for fear of unsettling Irish voters ahead of a second referendum on the Lisbon Treaty.

The European Commission and the Czech Republic, which holds the rotating presidency of the EU, have both indicated a proposal will not now be tabled for at least six months.

“We will not address this issue during our presidency,” Czech finance minister Miroslav Kalousek told journalists in a recent briefing on the Czech priorities for its presidency.

A senior commission official also confirmed the EU executive would not table the sensitive taxation proposal until after a new commission is appointed in November.

“We cannot publish any proposal before a second referendum on the Lisbon Treaty is held in Ireland. The issue was misused during the last Lisbon referendum by the No campaign even though it would not have affected Ireland’s corporate tax rate,” said the official, who spoke on condition of anonymity. “We can’t risk that happening again.”

Just days after the Irish No vote last June, Taxation Commissioner Laszlo Kovacs denied he would have to delay the publication of a commission proposal to create a pan-EU method of calculating company taxes.

“There is no reason to change our plans concerning tax policy initiatives. The CCCTB is in the pipeline,” Mr Kovacs told The Irish Times , referring to the acronym describing the plan to harmonise the EU’s corporate tax base.

However, the commission has decided that it is more prudent to wait until a second referendum on Lisbon is held in October and a new commission is appointed.

Libertas, the anti-Lisbon campaign group led by businessman Declan Ganley, ran a high-profile campaign in the previous referendum arguing that Lisbon would remove the Irish veto over tax.

While this claim has been denied by both the EU executive and the Government, research conducted after the first poll suggested taxation was a factor in the No vote.

Mr Kovacs says his plan would simplify the corporate tax regime for multinational firms working across borders in Europe. However, states with low corporate tax rates such as Ireland and Slovakia fear it could erode tax competition and harmonise tax rates in the future.

Internal Markets Commissioner Charlie McCreevy has been an outspoken opponent of the plan, which he warns is really an attempt by some bigger states to bring in a system of tax rate harmonisation “by the back door”.

He will not now be part of a college of commissioners when a proposal on a common tax base is eventually tabled, most likely by the next commission that is due to be appointed in November.

In the EU any change to tax rules must be agreed by unanimity, giving Ireland an effective veto over taking part in any common tax plan. However, Mr Kovacs has floated the prospect of a majority of states moving ahead on their own with a harmonisation of the tax base under a procedure known as “enhanced co-operation”.

By JAMIE SMYTH in Brussels
This article first appeared in the Irish Times.