Business Irish

Friday 23 March 2018

French step up pressure in corporate tax battle

Europe's heavyweights turn up heat on crisis-stricken periphery with call for definite, euro-wide 'progress on tax co-ordination'

French President Nicolas Sarkozy. Photo: Getty Images
French President Nicolas Sarkozy. Photo: Getty Images

Donal O'Donovan

FRANCE and Germany last night piled fresh pressure on Ireland's 12.5pc corporate tax rate with a call for euro-wide "progress on tax co-ordination".

The call came in a letter from French President Nicolas Sarkozy to EU president Herman Van Rompuy that set out in more detail initiatives agreed between the French and German leaders on Tuesday.

The two countries said negotiations on controversial plans to change the way corporation tax was raised should be completed by the end of next year.

Member states should commit to finalise the negotiation on the commission's proposal for a "a common consolidated corporate tax base" before "end 2012", they said. Mr Sarkozy and German Chancellor Angela Merkel met in Paris and agreed to examine a single corporate tax for their two countries that could be in place by 2013.

"Euro-area member states should be ready to consider enhanced co-operation for further progress on tax co-ordination.

"(They) should enhance their co-operation to avoid harmful tax practices and fight against fraud and tax evasion," they said.

Noonan statement

Finance Minister Michael Noonan yesterday reiterated the Irish view that tax proposal would not affect Ireland.

But yesterday's letter goes further than the statement issued after the meeting, with calls for euro-wide tax agreements that read like a thinly veiled attack on Irish tax policy.

Banks across Europe criticised the Franco-German plan for a tax on financial transactions yesterday, saying it would jeopardise economic growth and distort markets as British and Swedish governments distanced themselves from the proposals.

Mr Noonan said that Ireland would insist that a proposed new tax on financial transaction tax should apply to all 27 members of the EU and not just the 17 members of the eurozone, if it is to come into effect. The UK, which relies on its massive banking sector, is sure to shoot down any such proposal.

Investors took fright yesterday over the renewed backing for a tax on financial transactions, driving down shares in European stock exchanges in spite of Berlin making clear the levy would have to apply to the entire European Union. Mr Sarkozy and Ms Merkel are also seeking tighter supervision of EU structural and cohesion funds for countries, including Ireland, that are already in bailout programmes.

That is in contrast to a deal agreed on July 21 at a meeting of all eurozone leaders and the European Commission president, Jose Manuel Barroso.

Then, leaders agreed to speed up access to structural funds for bailout countries, and agreed to waive rules on co-funding of projects that made it hard for indebted countries to draw down the money.

Yesterday, EC leaders backed plans for stronger economic integration, but tried to widen the focus for further development away from the two big countries.

"The proposals are a welcome step forward in our common efforts to strengthen the governance of the euro area.

"They represent an important political contribution by the leaders of the two largest euro area economies to this debate and the ongoing work," Mr Barroso and the EU's economic affairs commissioner, Olli Rehn, said in a statement.

Market analysts said yesterday that Ms Merkel's resolve to defend Germany's top credit rating in the wake of Standard & Poor's US downgrade was at odds with the likely expense of containing Europe's debt crisis.

Ms Merkel faces a domestic audience both wedded to Germany's AAA rating and divided over whether Europe's largest economy should provide financial succour to its currency-union partners in the form of common bonds.

Mohit Kumar, of Deutsche Bank, said an aggregate credit rating of AA+ for the euro region, a notch lower than Germany is used to, meant it was impossible for Germany to maintain its AAA rating while issuing a euro bond.

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