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Tax harmonisation 'by back door' threatens our economic survival


It was one of the shrewdest moves Ireland has ever made. Back in 1995, the economy was just starting to take off and a group of Irish civil servants, with revenue officials in the vanguard, went to the EU with a proposal for a new Irish tax regime.

People were bristling at our existing regime, which gave a 10pc corporation tax rate to selected foreign companies setting up in Ireland and to some Irish companies, most notably manufacturers.

The suggested solution was that we would stop treating foreign companies differently and introduce a new 12.5pc rate for everybody.

Although the economy was doing well, most of our neighbours, and some of our own commentators, dismissed our success as a mere blip, a cyclical rise which would be followed by a fall. We were certainly not seen as an economic powerhouse.

I hope there is a plaque somewhere to the civil servants who persuaded the EU that there was no threat to our introducing a common low rate of corporation tax.

Let there be no doubt about the benefit of this move. Just as lowering capital gains tax led to a net increase in revenue, a low-tax environment was a boon to Irish businesses -- coming at a time when it was still very difficult to source funding.

It also secured our ability to attract inward investment. In that regard, much is sometimes made of our ability to speak English or our highly educated workforce; but the principal reason foreign companies, and in particular American foreign companies, have flocked to Ireland is low taxes.

Those who agreed to our low corporation tax back in 1995, without stipulating that it would be reviewed after a set period, are now saying they want us to increase our corporation tax. Oh, they are not saying it directly, but that is the import of what they are so sedulously doing.

There is no direct proposal to harmonise European corporation taxes. What is happening is what Charlie McCreevy calls tax harmonisation by the back door.

The proposed common consolidated corporate tax base (CCCBT) is being sold as a means of improving tax efficiencies across Europe. But to achieve this, one would have to agree on what is tax deductible, what accounting methods we use and a myriad of other matters. As this process would narrow some countries tax bases and extend others, it would be accompanied by a process where countries either raise or lower corporation tax rates.

The next stage could see taxes being worked out on the basis of where goods are sold rather than where they are manufactured, which would seriously hit small countries such as our own, to the benefit of big countries. No prizes for guessing who are the principal backers of the CCCBT proposals.

Last week, Jose Manuel Barroso assured Irish business people that the Lisbon Treaty would not mean harmonised corporation taxes. He is correct. Were it otherwise, the Lisbon Treaty could hardly count among its most loyal supporters both IBEC and the American Chamber of Commerce in Ireland.

The CCCBT push is a danger which we must face up to whether or not the Lisbon Treaty is given effect. Mr Barroso pointed out that we could veto any attempt to introduce CCCBT across the EU. That does not mean the large EU countries will shelve their attempts to use the "enhanced co-operation" provisions of the EU to create a sort of "eurozone of CCCBT countries". Although Ireland would initially be excused from joining such a grouping, pressure would inevitably be brought to bear to bring us inside the camp.

This is not, as German Chancellor Angela Merkel has suggested, about Ireland setting a tax rate which undermines our European neighbours. This is about our right, enshrined in existing treaties, to adopt a low-tax environment as a matter of political principle.

In very reasonable French and German accents, we are consistently told that we should not criticise proposals which have not yet been finalised. But when you see an army marching towards you, you don't wait until they get to your borders to establish your defences.