Saturday 18 August 2018

Colm McCarthy: Plans to harmonise corporation tax set to bring little in way of harmony

EU changes to corporation tax and governance of the eurozone could hit Ireland hard as Brexit bites, writes Colm McCarthy

'Ireland has placed a business-friendly corporation tax regime at the centre of its economic strategy for decades.'
'Ireland has placed a business-friendly corporation tax regime at the centre of its economic strategy for decades.'
Colm McCarthy

Colm McCarthy

Ireland's agenda with the European Union is getting complicated. After five years of strong recovery, the country's economic prospects are exposed to developments in EU policy under three headings. There will be profound effects from Brexit about efforts to harmonise corporation tax and about future governance of the eurozone. And the next slowdown, whenever it comes, will see government burdened with heavy debts, with little headroom to let the budget deficit take the strain.

European Council president Donald Tusk's remarks in Dublin last Thursday have yielded a UK response which promises no prospect of a benign outcome. The Taoiseach mentioned the corporation tax threat explicitly in his press conference with Tusk, where the latter's comments on Brexit stole the headlines. The tax issue was also highlighted by OECD chief Angel Gurria who visited to launch his organisation's report on Ireland. And last Wednesday finance minister Paschal Donohoe released a joint statement on eurozone reform with a group of his opposite numbers from the smaller EU members in northern Europe.

The European Council meets a fortnight hence to consider progress in achieving a withdrawal agreement, including a post-Brexit transition deal. It may conclude that there has been no progress at all since their tentative verdict of 'sufficient progress' in December. The EU-27 have established from the outset that three boxes must be ticked in order to achieve an orderly UK exit; citizens' rights, in particular the fate of EU citizens in the UK and Brits abroad; the financial settlement or divorce bill; and the Irish border. The UK government has established, and continues to insist upon, a series of 'red lines' which prevent progress on these issues and preclude the attainment of Theresa May's 'frictionless trade' with the EU after Brexit day, a year away. Nothing of any importance has been achieved since the 'sufficient progress' fudge in December.

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