The European Union's long-term interests would be "fatally undermined" by the creation of common corporation tax rates, the Minister for Justice, Mr McDowell, said yesterday, report Mark Hennessy and Denis Staunton
The warning came just hours after it emerged that France and Germany were to table joint proposals for common EU rates in talks currently under way at the Convention on the Future of Europe.
A working group on economic governance at the convention failed to agree on tax policy. But most members of the group wanted to abolish national vetoes on tax issues, particularly because they affected the EU's internal market. France and Germany are to form a powerful alliance on the issue.
Many EU member-states regard Ireland's low corporate tax rate as unfair competition that is inconsistent with the internal market. Some are concerned that, after the admission of 10 new member-states in 2004, EU countries could enter into a "race to the bottom" on tax rates to attract investment.
Some candidate countries, such as Estonia, already use low corporate tax rates as an incentive for foreign investors.
Ireland will be joined by Britain and possibly Sweden in resisting any move to introduce tax harmonisation in the EU.
But the Government's determination to retain the national veto on tax issues could limit its room for manoeuvre in convention negotiations on other issues.
Since they made a deal on EU farm policy in October, France and Germany have signalled their determination to restore their relationship as the motor of European integration. They have already produced a joint proposal on EU defence policy for the convention and they are expected to unveil in January a major initiative on the reform of EU institutions.
Speaking in Germany yesterday, Mr McDowell said: "For my part, I believe passionately that tax harmonisation would be more damaging than helpful in the process of economic development of the EU."
Such a course posed "a very serious threat" to the EU's competitiveness.
"Nobody seriously suggests that harmonisation under qualified majority voting would tend downwards," he told the European Academy of Law in Trier.
He went on: "I would go so far as to argue that anyone who cares for the long-term of the EU and its peoples should reject harmonisation of direct taxation as an aim in itself and, consequently, reject proposals in the context of a reassignment of competences within the European Union.
"It may surprise some but it doesn't surprise me that the real and fundamental interests of the European Union could be fatally undermined by tax harmonisation proposals."
According to some, he said, tax harmonisation was "a logical development" on foot of the euro's creation because different tax rates undermined the EU economy's cohesion.
However, he said, it was more logical to argue that harmonisation would create "an economically sclerotic Union" weighed in favour of larger member-states.
Expressing some doubts about developments in the Convention on the Future of Europe, Mr McDowell said further treaty changes should be banned for years once the next treaty was out of the way.
"We all need the opportunity, but especially the citizens of Europe, to catch our breaths. It is very difficult to explain a constantly moving target to the public."
Voters should not be under-estimated, he said. If they did not like plans to create a European state they would not accept them, regardless of any "studied ambiguities" on the part of those who tried to persuade them to accept change.
The existing EU treaties were complex and difficult to understand largely because they were an attempt to ensure co-operation between 15 countries.
Efforts to simplify them could cause greater problems: "We must be careful not to get too far ahead of our electorates lest we leave them behind," said the Minister.
EU voters' doubts would not be eased by "the wholesale transfer" of additional powers to Brussels.
"You cannot bring Europe closer to the citizen by making their own administrations and parliaments less important and less relevant. That is the opposite of subsidiarity," he declared.
The full text of Mr McDowell's speech in Trier is available on The Irish Times website at: www.ireland.com