The dispute which has arisen between this State and the European Commission over Ireland's liberal tax regime for business is most surprising. Given the success of the Celtic Tiger economy, one might have thought that the Commission's focus would be on the means to sustain our record growth. Instead, the Commission is vulnerable to the charge that it is placing unnecessary obstacles in Ireland's way. The Commission, in fairness, has been a very good friend of this State. It has worked valiantly over the years to protect the interests of the smaller members. It has made the case - often in the face of stiff resistance from some of the larger states - for largescale structural and regional funding for Ireland and the other cohesion countries. That is why its approach in the current dispute over Ireland's corporation tax regime is inexplicable.
Ireland is accused by some of our EU partners - and the Commission - of unfairly attracting investment through the use of low corporation tax rates. Brussels takes the view that the 10 per cent tax regime for manufacturing exporters and the similar rate used to attract investment to the International Financial Services Centre (IFSC) in Dublin, and to the Shannon region, represents a subsidy for investment and, therefore, distorts the EU market.
The Government is determined to preserve the 10 per cent rate until 2025 but the Commission argues that newcomers to the IFSC, Shannon and the promised new enterprise zones should pay tax at the prevailing general rate.
The crux of the argument between the Commission and Ireland is now likely to centre on how quickly Ireland will move towards one corporation tax rate. The Government has said it will introduce a single low rate by gradually reducing the existing standard 36 per cent rate. At issue now is how quickly the transition to a single rate will happen and whether this single rate will be 10 per cent or 12.5 per cent.
The EU's Competition Commissioner, Mr Karel van Miert, has apparently been provoked into action by concern among the larger EU states that they cannot compete with Ireland's low tax regime. It is difficult not to conclude that Ireland is being penalised for its own spectacular economic success. EU governments spend some £75 billion in state aids to industry every year, many of them thinly veiled attempts to subsidise industries which might not otherwise be viable. Several EU states provide some kind of low tax regime or establish enterprise zones in order to attract funds. And there has been more than one suggestion that some of the bigger states have promised some multinationals a percentage of state contracts in order to secure inward investment.
The Government is to be commended for its tough defence of the existing corporation tax regime - especially when the Commission's competence to regulate a tax regime for exporters is open to question. Its demand for a transition period before it moves to reduce the 36 per cent rate is entirely reasonable, given the budgetary implications of a dramatic reduction in the rate. As the Tanaiste and Minister for Enterprise, Employment and Trade, Ms Harney, advised last night, the EU should learn from the success achieved by Ireland's low corporation tax regime. Ireland should not be made a victim of its own success.