France and Germany put corporate tax in crosshairs
France and Germany have proposed a new EU agreement that would lead to the "harmonisation of corporate tax base" in the eurozone.
This 11th-hour proposal is sure to be bitterly resisted by Taoiseach Enda Kenny at the EU leaders' summit in Brussels, which begins today.
The plan is contained in a Franco-German letter sent to the president of the European Council, Herman Van Rompuy, and will be discussed when EU leaders begin deliberations tonight.
Ireland's low corporate tax rate has long been an issue with French President Nicolas Sarkozy, who would like to see it raised. In the letter, France and Germany also called for a financial transaction tax, which the Government fears would damage the highly successful financial services industry.
However, both proposals are extremely controversial and will be strongly resisted by at least half of the eurozone's members, one EU diplomat said.
The letter was vague but the European Commission published plans earlier this year for a common consolidated corporate tax base, where large corporations would pay their taxes in the country where their sales, employees and assets -- and not their headquarters -- are based.
While the plan does not affect tax rates, Mr Kenny has said it is tantamount to "tax harmonisation by the back door".
Finance Minister Michael Noonan began his Budget speech on Tuesday by reaffirming the country's commitment to maintaining our 12.5pc corporate tax rate.
The Franco-German letter goes on to propose wide-ranging treaty changes to create a "stability and growth union" -- including monthly meetings of heads of government, a balanced budget rule in national constitutions, automatic fines for countries that flout EU deficit limits and closer co-ordination of financial and labour market regulations.
Alongside increased fiscal discipline, France and Germany suggest that bailed-out countries benefit from a bolstered and permanent rescue fund, which should come into force next year.
This would take the place of the temporary European Financial Stability Facility (EFSF), which is part-funding the Irish bailout, and which is due to run out mid-2013.
Bondholder writedowns would not be compulsory for countries accessing the fund, an option which was mooted last year around the time of the Irish bailout.
Earlier yesterday, it emerged that the European Commission has raised the possibility of a two-stage EU treaty change process in order to secure the broad agreement of EU leaders and end the eurozone debt crisis.
It appears this would involve EU leaders agreeing immediate measures -- which would not require a referendum -- at this weekend's summit, with more substantial changes coming later that would require a treaty.
However, Germany last night insisted that its European partners must undertake the politically fraught process of changing European Union treaties, or at least accepting a binding new eurozone accord, to bring stability to the single currency and restore the confidence of investors. The Franco-German proposals echo those made by Mr Van Rompuy, who circulated his own ideas paper to states this week.
In it, he suggests running the two rescue funds -- the EFSF and the €500bn European Stabilisation Mechanism -- together to boost the amount of cash available to weaker states, and also suggests eurobonds could be introduced in future to allow governments to borrow at reasonable rates.