Fergus O'Dowd (Louth, Fine Gael)

I thank the Deputy for raising this very important matter which I am taking in the absence of the Minister for Finance, Deputy Noonan, who is unavoidably absent.

I will begin by outlining the background to our 12.5% corporation tax rate and its importance to Ireland. I will then outline the background to the common consolidated corporate tax base, CCCTB, proposal before differentiating between the proposal for a CCCTB and the corporation tax rate issue in the context of recent developments.

Since the 1950s Ireland has used its corporation tax strategy to encourage the growth of domestic business and attract foreign direct investment. The 12.5% corporation tax rate is critical to supporting our economic recovery and employment growth. Any move towards converging or harmonising the rates of company tax would substantially damage Ireland's ability to attract foreign direct investment and hence our ability to grow our way to economic recovery. Furthermore, certainty is a key element desired by investors and abandoning the commitment to the 12.5% rate would be seen as a major change in policy. It is central to our industrial policy and an integral part of our international brand. The commitment to the 12.5% rate was restated in the Minister's Budget Statement when he made it clear that there would be no change. This reiterates most of the comments made by the Deputy.

Members will be aware that the proposal for a CCCTB was published on 16 March. A CCCTB would essentially introduce new common rules for calculating company taxation across the European Union and replace the universally accepted separate accounting with arm's length pricing method for allocating group profits across borders with a sharing mechanism under a system known as formulary apportionment. The Commission argues that a directive is needed to tackle tax obstacles that are barriers to the completion of the Single Market and which place additional costs on businesses which trade across borders. It is worth reiterating that the explanatory memorandum to the CCCTB proposal specifically states there is no intention to extend harmonisation to tax rates and that each member state will be applying its own rate to its share of the tax base.

Ireland's position on the CCCTB is that we remain sceptical of the proposal, but we are constructively engaging in the policy and technical debate. We are not alone among member states that are sceptical about the proposal, but all member states are participating in the technical debate. As has been stated on a number of occasions, despite our scepticism about the merits of the proposal, the Government's view is that it is vital that Ireland is represented in the debate as only by actively engaging in the process can we ensure we will bring all issues of concern to the table. Our approach to translating constructive engagement into practice has involved a number of different aspects. First, the Department of Finance and the Revenue Commissioners are examining the Commission's proposal to assess the potential impact not only on the Exchequer position, but also on whether it is rigorous enough to stand up to the requirements of a modern tax system. Second, we are engaging in the EU Council working party on tax questions. The third element of our approach is to engage with Irish business representatives and our EU partners on the dossier to examine how they feel the proposal may impact on them. Engagement with our EU partners allows us to build a pan-European picture of the potential impact of the current proposal and areas where there may be some difficulties. This last step will be vitally important prior to and during the Irish Presidency of the European Council from 1 January 2013.

Members will be aware that a Dáil select committee examined the issue in May and following its examination, the committee determined that the CCCTB was in breach of the principle of subsidiarity. Nine member states with a total of 13 votes voted that the CCCTB breached the principle of subsidiarity. This, however, fell short of the treaty requirement for 18 votes which would have forced the Commission to re-examine whether the CCCTB was in conformity with the principle of subsidiarity. The Vice President of the European Commission responded to the reasoned opinion of Dáil Eireann on 20 October last. That response is available to all Members.

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