Plans to harmonise corporation tax across the European Union could undermine Irish sovereignty and threaten inward investment in the economy, an internal Government document has warned.
The document, a copy of which has been seen by The Irish Times, also warns that, while the unanimity required to implement the measure is lacking, the proposal has the support of all major EU states except Britain.
The Department of Finance memorandum, which outlines the Government's opposition to the Common Consolidated Corporation Tax Base (CCCTB) proposal, says that by harmonising the way corporation tax liabilities are calculated Ireland's rate of corporation tax could end up becoming higher.
At 12.5 per cent, Ireland's is among the lowest rates of corporation tax in the EU.
Instead of being calculated separately in each member state in which a company operates, as at present, if the plan succeeds, companies will have their liabilities calculated on an EU level.
The document states that problems could arise over how to calculate the shares of corporation taxes which, once levied at EU level, are repaid to member states in which such a company operates.
"The question arises as to which economic criteria would apply: proportion of assets, risk, employment, sales revenue in each member state? It is difficult to see how an appropriate division of the profit could be devised," the document states.
Under the CCCTB proposal, companies operating in Ireland could be forced to pay a higher rate of corporation tax on their Irish activities than is currently the case.
"This would reduce the effectiveness of our 12.5 per cent rate, with consequential negative impacts on Ireland's competitiveness and attractiveness for DFI [direct foreign investment]."
Such a plan would impact negatively on corporate tax revenue. "With the base harmonised, it will be easy to propose a common uniform EU tax rate. This is not a good feature," the document adds.
A confidential part of the memorandum lists Hungary, Luxembourg, The Netherlands, Austria, France, Germany, Italy and Spain as fully supporting the plan.
Among the large countries of the EU, only Britain is opposed to the plan, supported by Ireland, Malta, Latvia, Lithuania and Slovakia. The position of the remainder of countries is described in the document as "sceptical".
"Protecting Ireland's low corporation tax rate is of vital importance to the Irish economy and in terms of attracting inward investment into our country in the future," Fianna Fáil MEP Eoin Ryan said yesterday.
Tomorrow, a delegation comprised of Mr Ryan and representatives of the employers' body Ibec and the Irish Bankers' Federation will meet EU commissioner for taxation Lazlo Kovacs to lobby against the plan.
