Government warned not to cave into pressure on corporation tax
THE Government was warned last night that it must resist demands from France and Germany for concessions in return for a bailout interest rate cut.
The proposed interest rate cut could save the State €400m a year in repayments on the bailout loans provided by the EU.
But former Finance Minister Brian Lenihan warned that there had been "relentless pressure" from France and Germany to secure a change to Ireland's 12.5pc corporation tax rate.
The Fianna Fail Dublin West TD said the two countries wanted to put the Common Consolidated Corporate Tax Base (CCCTB) on the table -- which is seen as a back door method of harmonising corporate tax rates across Europe.
"An interest rate cut doesn't save us that much money. We get far more in corporation tax receipts," he said.
Mr Lenihan said that if the CCCTB plan allowed for the taxation of company profits in the country where they were made, it could have serious consequences for Ireland.
EU finance ministers are to hold a meeting on May 16 to discuss the Greek bailout and the latest bailout for Portugal.
Ireland's bailout is also expected to be discussed, but it is understood there is no guarantee that the interest rate cut will be agreed at the meeting.
Ireland pays an average interest rate of 5.8pc on the €85bn bailout package agreed last November with the EU/IMF.
This compares with a Greek rate of 4.8pc, while Portugal has yet to agree a figure.
The EU charged Ireland a premium on the interest rate for its bailout package to ensure that other countries did not see it as a cheap way of financing their budget deficits.
Communications Minister Pat Rabbitte said yesterday he was "hopeful" Ireland could secure a lower interest rate on its bailout loans from the EU.
And he was adamant Ireland's corporation tax rate would not be the price for a reduced rate.
"We must get the interest rate down without quid pro quo," he said.
The Government has been adamant it will fight 'tooth and nail' to protect the corporate tax rate, which is seen as crucial for the State's ability to retain and attract jobs from multinational companies.
But it will also have to ensure that the European Commission's CCCTB plan does not undermine the corporation tax rate.
The commission has said the plan will mean that companies would benefit from a 'one-stop shop' system for filing their tax returns and will reduce their compliance costs for meeting up to 27 different national systems for determining their taxable profits.
The Department of Finance spokesman said the Government was sceptical of the CCCTB proposal, but that it was willing to "engage constructively" with it.