ANALYSIS:JUST AS Enda Kenny comes under sustained Franco-German pressure to dilute Ireland's business tax regime, along comes the EU Commission with plans to harmonise Europe's corporate tax base.
While it was never any secret that the EU executive was cooking up plans for a common consolidated corporate tax base (CCCTB), the unveiling of draft legislation only intensifies the strain on Kenny as he tries to extract better bailout terms from his euro zone partners.
Kenny defiantly held the line at his first EU summit last Friday in the face of what has been described as an “ambush” by French president Nicolas Sarkozy.
But he faces an exceptionally tough battle to force an interest rate concession from German chancellor Angela Merkel and Sarkozy when he meets them again in Brussels this day week. To add to the challenge, Kenny is also looking for some form of European relief to ease the overbearing burden of the ever-expanding bank bailout.
This is the unappealing backdrop against which the two most powerful leaders in the euro zone are insisting on a “gesture” from the Taoiseach on corporate tax. The commission proposal for a common base – which Kenny regards as “back door” route to tax harmonisation – presents them with an ample example of how he might provide same.
The force of Kenny’s rhetoric suggests it will be very difficult indeed for him to yield even an inch.
While the Department of Finance said the Government will work “constructively” on the legislation with the commission and other member states, the reality is that Dublin has no intention of giving ground.
Still, the fact that the commission has set the legislative procedure in motion means Dublin must now deal with a proposal with serious implications for the closely guarded corporate tax policy.
No matter what the immediate outcome of next week’s summit, Kenny’s ministers will be dealing with the CCCTB plan for many months to come. Talks on the legislation also loom with MEPs.
Ireland’s antagonism towards the CCCTB proposal hardly comes as a surprise to taxation commissioner Algirdas Semeta. But he made it clear yesterday that the exercise of any national vetoes will not be the end of his proposal.
If necessary, the commissioner is prepared to invoke an “enhanced co-operation” procedure under which countries that favour a set of measures can introduce common European rules to apply only to them.
This is still novel ground in the EU milieu, but Ireland only last week opted to pursue such a path with 24 other countries on new rules to create a common European patent. The sense was that the naysayers – Italy and Spain – would be left with no choice in future but to set aside their reservations once the patent initiative gains ground.
In Brussels last night after day-long meetings with senior European officials, Minister of State for Europe Lucinda Creighton said that countries such as Poland, Malta and Cyprus shared Ireland’s doubts about CCCTB. She also hinted at British ambiguity.
But as Semeta made clear, an alliance of only nine countries is required to form a coalition of willing CCCTB partners.
Such an endeavour could put non-participants at a disadvantage, even though the CCCTB is voluntary for taxpaying companies. Companies which see attraction in the scheme would inevitably ask why it is not available to them in Ireland.
