EU raises spectre of hike in 12.5pc corporate rate

Belgium's Finance Minister Didier Reynders (left), European Commissioner for Internal Market and Services Michel Barnier (centre) and European Economic and Monetary Affairs Commissioner Olli Rehn (right) address a joint news conference at the Egmont Palace in Brussels.

Sarah Collins in Brussels and Brendan Keenan

October 02 2010 04:45 AM

A RISE in Ireland's rate of corporation tax cannot be ruled out as part of the process of stabilising the public finances, the EU Commissioner for Economic and Monetary Affairs, Olli Rehn, has said.

"I would not rule out any option at this stage, since we know that Ireland is not going to be in the coming decade, it's a fact of life, Ireland will not continue as a low-tax country. But it will rather become normal tax country in the European context," Mr Rehn said.

The comments will intensify fears that the EU might look to changes in the low rate of corporation tax as part of the stronger surveillance of national budgets.

This could be even more the case if Ireland had to seek emergency loans from the €440bn eurozone bailout fund.

The commission will have to sign off on new spending and revenue targets -- including detailed measures on how they will be met -- when they are set out in a four-year budget plan to be published by Finance Minister Brian Lenihan in November. Germany has raised concerns in recent weeks about Ireland's 12.5pc corporate tax rate -- the lowest after Cyprus and Bulgaria -- and has hinted it will pressure the Government to raise it if it ever needs to tap the eurozone's €440bn rescue fund.

One German Green MEP has said a rise in the 12.5pc rate should be a condition of any assistance for Ireland.

The movement of savings from Germany and other member states to Dublin's International Financial Services Centre caused particular concern -- enhanced by perceived weak regulation at the IFSC.

Taoiseach Brian Cowen said it would be up to the Government as to whether Ireland's corporation tax should be altered as part of the four-year budget plan.

A spokesman for the Department of Finance said the Government had always made it clear that the corporation tax rate will remain at 12.5pc as set out in the Programme for Government. "The 12.5pc corporation rate is a cornerstone of the Irish industrial policy," he said.

Mr Rehn said the fiscal plan would mean, not only more spending cuts, but unpopular tax increases.

"I don't want to take any precise stand on an issue which is a matter for the Irish government and parliament to decide, but I would not rule out any option at this stage," he said.

Belgian finance minister Didier Reynders, whose country holds the EU's six monthly rotating presidency, hinted that it might be better to leave corporation tax alone.

"If it's possible that the corporation tax level is better for job creation, then it's better to stay with that, but if you need to go back to balanced budgets, you need to reform expenditure and taxation."

The American Chamber of Commerce in Ireland reacted strongly to Commissioner Rehn's comments.

"At a time when the economy is in deep recession, nothing which would impact on the continued investment in Ireland by our existing base of multinationals, or would deter new investment can be countenanced," Lionel Alexander, president of the Chamber, said.