Richard Bruton (Dublin North Central, Fine Gael)
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Question 87: To ask the Tánaiste and Minister for Finance the implications of recent moves in the EU to create a new basis for calculating corporate tax liabilities; and if he will make a statement on the matter. [23773/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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When discussing the plans that the European Commissioner for Taxation and Customs Union has for a common consolidated corporate tax base, it is important to not only address the implications for Ireland but also to address the implications for the European Union as a whole. It is also important to note that as of now only technical work is under way; the Commission has not made any final proposal, the Council has not considered any proposal and many member states are opposed to or sceptical towards the proposition in general.

The implications of the proposition, as we understand it, are that if such a proposition were implemented, it would offend against the principle of national sovereignty in fiscal matters and create serious potential difficulties at national and EU level. In terms of general principle, the position of the Government is clear and well understood. The right to choose how one is taxed is not a matter only of economic or industrial or social policy but also a civic right of the citizens and taxpayers in a member state. In this way, each member state can decide on its overall level of public expenditure and how this will be financed.

As regards practical implications, greater tax harmonisation could lead to the creation of a less competitive, high tax economic entity in regard to other economic blocks. A less competitive European Union means that business will move out of Europe and the competitiveness of the Union would suffer. Moreover, the most likely "sharing mechanism" under the common consolidated corporate tax base would dole out the taxes from multinational firms not on the current basis of where they are located but on the basis of a formula based on assets, sales and payroll expenses — factors that better reflect "old" rather than "new" types of industry. This would also mean that profits generated through the production of goods and services in, for example, Ireland would be at least partially taxed in other member states — export oriented member states would suffer under such a system.

The common consolidated corporate tax base would be inflexible. It would hamper individual member states from taking account of local needs, while making it extraordinarily difficult for Europe as a whole to adapt to changes in the international business and technological environment in the global business cycle. Under the common consolidated corporate tax base, agreement would have to be reached by all participating member states if one participating member state wished to change any part of its corporate tax rules.

Although it is argued by proponents of the idea that each member state could retain discretion over its national tax rate, the effect of the operation of the "sharing mechanism" would be that each internationally oriented firm would be taxed at a whole range of different rates in different member states — no member state would retain discretion to determine the actual tax rate for its firms. In other words, national tax policy would not be replaced by an EU policy; in fact, there would be no policy at all. This would probably then be used as an argument for an EU level single tax rate.

Additional information not given on the floor of the House.

The other "antidotes" suggested to the inflexibility inherent in the common consolidated corporate tax base proposition are that some decisions would be made in committees by qualified majority voting and even that there might have to be some co-ordinating EU tax authority. These would be ineffective mechanisms in terms of policy flexibility which would further erode national choices. The real antidote to tax policy inflexibility is to retain national discretion.

It should also be remembered that European member states not only compete for FDI with each other but also with countries outside the European Union. Higher corporate taxes and less flexible systems would lead to reductions in foreign direct investment, especially in smaller more peripheral economies.

None of this means that we are opposed to working at EU level to improve the business tax environment through the elimination of barriers to trade within the Internal Market. In common with a number of other member states we actively support the work of the Commission in addressing real priorities such as VAT fraud and place of supply, the work of the "Code of Conduct Group" in relation to harmful tax practices, the removal of financial services barriers, and other areas where the Single Market can be completed to the benefit of all of the European Union.

The Government, in co-operation with other member states, will continue to engage with the European Commission in a constructive and positive manner in regard to tax matters — that is the role of responsible EU members — but we will also uphold the principles in which we and others believe, in terms of subsidiarity, national discretion and competitiveness.

Richard Bruton (Dublin North Central, Fine Gael)
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At the weekend the Minister described economists as highly dangerous people and quoted Leonid Brezhnev. I presume it is that source that is designing this——

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy knows that was a joke.

Richard Bruton (Dublin North Central, Fine Gael)
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I do.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I always knew the Deputy had a sense of humour.

Richard Bruton (Dublin North Central, Fine Gael)
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I presume it must be someone from that source whom he believes is designing this corporate tax structure. The Minister will be pleased to hear I agree with him when he suggests a system where, effectively, bureaucrats will decide where profits arise and are taxable is unworkable and should not be accepted but I want to ask him about two points arising from his comments. The Minister indicated there is little support among member states for this proposal. At the same time, however, he is taking considerable time to address it in a major speech. Is he satisfied there is not growing support for some key states to move off individually to create this on their own? Has the Minister looked at the specific impact on Irish revenues if this new averaging system for calculating was put in place?

Brian Cowen (Laois-Offaly, Fianna Fail)
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There is no formal proposal on the table. Technical work has been done at Commission level and has been brought to the ECOFIN Council from time to time. Commissioner Kovács indicates the level of progress but nothing definite has been suggested at this stage. Most people are courteous in listening to that, as we should be, not indicating outright disapproval since no proposal has been made yet. The work, however, continues and often it is interpreted that because the work is continuing, everyone will be happy at the end of the day.

I have consistently outlined the practical reasons that I do not agree with the proposal. There is a lot of work that should be done to improve taxation within the EU in terms of VAT fraud, the code of conduct and the introduction of a single financial services area. There are many issues with some prospect of an outcome that we should work on with the same determination but I am not convinced this will be approved by everyone. Unanimity will be required for its approval.

It is important that Ireland alerts all member states and the European Union. It is not just about how we see it, I honestly believe this is not good for Europe and would express that view in the context of any policy that is being formulated. There have been indications from the directorate general of the Commission that it would proceed with the proposition until there is something concrete. I have a problem with it. I have no specific calculations because there is no proposal in front of me but the Deputy can rest assured it would be detrimental.

Richard Bruton (Dublin North Central, Fine Gael)
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Is it possible for a group of states to adopt the idea and proceed on their own once that group reaches a minimum size? Could it emerge without unanimity if a group agreed to strike out on its own?

Brian Cowen (Laois-Offaly, Fianna Fail)
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It has been suggested, as a way of getting around the inflexibility inherent in the common, consolidated corporate tax base proposition, that some decisions would be made in committees by qualified majority voting and that there might be some co-ordinating tax authority across the EU. We believe those would be ineffective mechanisms in terms of policy flexibility which would further erode national choices. The real antidote to tax policy inflexibility is to retain national discretion.