The European Commission watered down a key report on consolidating the EU's corporate tax base yesterday amid concerns it could provoke opposition from member states.
Tax commissioner Laszlo Kovacs was forced to delete references to establishing an EU-wide tax authority and extending the jurisdiction of EU courts to tax disputes in a communication on his flagship strategy.
The changes were ordered after the college of commissioners debated Mr Kovacs's draft plan to harmonise and consolidate the corporate tax base within the EU.
Internal market commissioner Charlie McCreevy - a key opponent of the plan - was one of several commissioners who raised concerns that the proposals undermined national tax sovereignty. He also recommended that an impact assessment should fully investigate the consequences that the plan would have on member states' tax revenue.
However, the progress report concludes that the introduction of a common consolidated corporate tax base would make the EU a "more attractive market for investment". It also sets out further steps that the commission will take before making a final legislative proposal in 2008.
Commission sources said the redraft was ordered to make the report "more factual" and not to give the impression that these controversial ideas had already been decided in advance of a final proposal.
Presenting the paper, Mr Kovacs called on sceptical governments, including the Republic, to support the commission's efforts to set common rules to calculate taxable business income across the continent.
He said the Republic had nothing to fear from the proposals, which were not a Trojan horse to introduce common corporate tax rates in the EU.
"No one can force Ireland to accept the CCCTB [ common consolidated corporate tax base]," he said. "In the end it will be a decision for the Irish Government to decide whether to join the system."
The Government is vociferously opposing the commission's strategy, which has the support of big member states such as France and Germany. It fears that agreeing a common corporate tax base would inevitably lead to common tax rates. Consolidating this tax income may also lead to a drop in exchequer revenues, the Department of Finance has said.
Mr Kovacs said he thought the concerns held by several member states - the UK, the Republic, Lithuania, Latvia, Slovakia, Cyprus and Malta - would be overcome once a harmonised corporate tax base was introduced.
He said even those states that stayed outside the plan when it was introduced would eventually sign up to it when they realised that it did not infringe tax sovereignty and offered more benefits than dangers.
Mr Kovacs has said harmonising and consolidating the tax base in the EU would cut compliance costs for business and encourage small firms to undertake more business abroad.
But Irish business groups attacked the proposals yesterday.
The Irish Business and Employers' Confederation (Ibec) said it was strongly opposed to the plan, which it said would be particularly damaging to smaller EU states such as the Republic.
The Irish Taxation Institute said the report was "dangerously fuzzy" and its plan to extend the CCCTB to the financial services sector was worrying. In 2006, IFSC companies alone contributed €1.1 billion in tax revenues to the exchequer, it said.
EU finance ministers will debate the progress report in early June before Mr Kovacs presents a final legislative proposal early next year.
