There appears, at last, to be a good prospect that the ongoing discussions between the Government and the EU Commission over the vexed question of corporation-tax levels in this State may be close to a resolution. The Tanaiste and Minister for Enterprise, Trade and Employment, Ms Harney, appeared pleased this week after what she termed a "successful" bilateral meeting on the issue with the Competition Commissioner, Mr Karel Van Miert. The parameters of an agreement now appear to be in situ; the Government will reduce the general level of corporation tax by about four per cent over the next five years in an effort to achieve a tax level of 12.5 per cent by the year 2003. Critically, however, those companies already benefiting from the low taxation rates will be allowed to retain them until 2010 in the case of manufacturing exporters and until 2005 in the case of companies situated in Dublin's International Financial Services Centre (IFSC). Agreement also seems close on a formula which would allow those companies already planning to locate in the Republic to avail of the low 10 per cent corporation tax rate until 2003 and the new 12.5 per cent rate thereafter. The importance of these discussions can scarcely be exaggerated. This State is rightly proud of its education system and its improved communications and physical infrastructure. But Ireland's low level of corporation tax has also been a critical factor in helping to attract record levels of inward investment.
Unsurprisingly, Ireland's success in attracting industry has generated resentment in some other EU capitals. Ireland stands accused of unfairly attracting investment because of its low corporation tax regime. The Commission and several EU states are of the view that the 10 per cent tax rate for manufacturing exports and for IFSC companies represents an effective subsidy for investment and distorts the single market. In this regard, the decision of the Boston Scientific company to relocate from Belgium to Ireland has become something of a cause celebre: an example of how Ireland enjoys an unfair advantage in the hectic battle to secure inward investment. But this is only part of the story. Several EU states provide low-tax regimes or establish tax-designated enterprise zones in order to secure inward investment. It is also the case that EU governments - especially the larger states like France, Germany and Britain - spend hundreds of millions of pounds on state aids to industry. By some estimates, EU governments spend over £75 billion on state aids per year - most of it to assist large-scale engineering and manufacturing industry. Ireland's low-tax regime may, indeed, give it some advantages; but most member-states employ some kind of tax or state aid to attract industry or to subsidise it. Ms Harney is to be commended for the robust approach she has taken in the negotiations; the agreement that is now on the table appears to be an equitable compromise between the somewhat theological approach of the Commission and the practical approach of the Government.