Bottom line on corporate tax row
Published 16/03/2011 | 05:00
What is corporation tax?
It's the tax companies pay on the profits they earn.
So, what's happening on the corporate tax front?
Countries such as France and Germany are trying to force Ireland to increase the 12.5pc corporate tax rate in exchange for a better deal on the bailout package.
- Why do they want us to increase corporate tax?
Ireland uses the 12.5pc rate to attract international companies. Other European countries believe they would have more success in securing international investment if they didn't have to compete against Ireland's low rates.
- But didn't Michael Noonan say companies in France pay less corporate tax than in Ireland?
He did indeed. He says that while Ireland's flat rate of corporate tax is low, countries such as France have many allowances and special schemes that allow companies to pay less tax than they would here.
- So companies would be better off setting up in France then? Or in Luxembourg?
You can pay less tax in France or Luxembourg, but you have to employ an army of tax advisers and accountants. The big selling point of the Irish system is its simplicity and transparency.
- And what's all this about a 'common tax base'?
It's a way of edging towards a common tax policy. The basic plan is that companies could assess their tax bills across Europe under a single set of rules called the common consolidated corporate tax base (CCCTB). Profits would be shared between the countries firms trade in under an agreed formula. States would still charge their own rates of corporate tax on those profits.
- Where does Ireland stand?
Enda Kenny calls it "harmonisation through the back door". The rules might make it harder for companies to attribute significant profits to Ireland, which would dilute the impact of our attractive corporate tax rate.
- Where to next?
Ireland has agreed to 'engage' on the proposals, which is likely to mean drawing things out for as long as possible, even for years. As for the corporate tax rate, Ireland will be fighting hard to keep it at 12.5pc. And politicians won't be shy of reminding Europe that the rate was protected under the Lisbon Treaty.