Ireland's low level of corporation tax, which has been credited with much of the State's economic success over the last decade, will be under threat from next year following proposals from the EU commissioner for taxation Lazlo Kovacs.
Mr Kovacs said yesterday that he wants to introduce proposals for a Common Consolidated Corporation Tax Base (CCCTB) by 2008.
The proposals would be likely to result in a substantial hike in Ireland's corporation tax rate, which at 12.5 per cent is one of the lowest in the EU.
The commissioner made his comments at a meeting with business lobby group Ibec, the Irish Banking Federation (IBF) and Fianna Fáil MEP Eoin Ryan in Strasbourg yesterday. Senior figures in Ibec and the IBF were in Strasbourg to lobby against the plans to harmonise corporation tax across the EU.
Under the proposals, instead of tax liabilities being calculated separately in each member state in which a company operates, companies will have their liabilities calculated on an EU level.
Initially this would mean the introduction of a common set of rules for the administration and operation of corporation tax across the EU, for example what tax relief is available, how you define a sale, or what tax relief do you give for the depreciation of plant and machinery.
However, it is likely to lead to a common rate which would almost certainly mean that companies operating in Ireland would be forced to pay a higher rate of corporation tax on their Irish activities.
The European Commission will issue revised proposals next week, Mr Kovacs said. Germany, which supports the move along with most other EU countries except Britain and Ireland, will hold a conference on the adoption of CCCTB in Berlin on May 18th, as part of its presidency.
Speaking after yesterday's meeting, Mr Ryan said increasing Ireland's corporation tax rates would have a very detrimental effect on the economy and this threat was now imminent.
"Ireland has a very serious battle on its hands if we are to stop common corporate taxes being introduced in Europe," he said.