The European Commission is examining how the harmonisation of corporate tax rates would affect business in Europe. The move comes despite repeated denials by the commission that it planned to pursue such an approach.

The commission is in talks with two companies to undertake research on the economywide effects of reforms of corporate tax income systems within the EU. The new research will feed into tax commissioner Laszlo Kovacs's upcoming legislative proposal on the harmonisation of the corporate tax base in the EU. This proposal will be presented sometime next year.

Until now Mr Kovacs has repeatedly denied that the EU planned to propose the harmonisation of corporate tax rates. The move is likely to spark anger from companies in Ireland in both the indigenous and multinational sectors.

The research project includes four components, the most controversial of which envisages a "compulsory common consolidated corporate tax base accompanied by a harmonised corporate income tax rate". The terms of reference for the study also clearly favour harmonising rates by stating that this would eliminate "all distortions of the cross-country pattern of investment and allocation of tax bases".

This should be reflected in efficiency gains from an improved international allocation of capital within the EU, according to the tender for the study seen by The Irish Times.

A spokeswoman for the EU tax commissioner refused to comment yesterday on the tender, which is worth about €150,000 and will take between six and 18 months to complete.

But the decision by the commission to study the benefits of corporate tax rate harmonisation will prompt concern in Government circles.

Last night, the employers' group Ibec, the Irish Banking Federation and the Irish Taxation Institute expressed their surprise at the latest developments in the EU's proposed tax strategy.

Mark Redmond, chief executive of the Irish Taxation Institute, said the study demonstrated that the commission was now seriously considering the introduction of both a compulsory tax base and a compulsory tax rate.

"The concern all along was that we would get harmonised tax rates by the back door. Now it appears we may get harmonised rates by the front door," he said.

Fianna Fáil MEP Eoin Ryan said that protecting the Republic's corporate tax rate structure was now the most important political issue facing this State in the context of its EU membership.

This was another demonstration that the issue of harmonising corporate tax rates was on the agenda for discussion in Europe, he said.

The commission also wants the research to focus on three alternative policy scenarios apart from harmonising corporate tax rates:

An optional common corporate tax base;

An optional common consolidated corporate tax base;

A compulsory common consolidated corporate tax base.

The news emerged as EU tax experts from all 27 member-states met in Brussels yesterday to discuss Mr Kovacs's controversial proposal to harmonise the corporate tax base.

Mr Kovacs's latest discussion document includes provision for a "sales factor" which would divert a portion of a company's corporate tax receipts to the EU state where the consumer buys the product rather than the state where the firm is based. Tax experts fear that Ireland would lose substantial corporate tax receipts to big EU states under that formula.