Paddy Burke (Fine Gael)
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I welcome the Minister of Arts, Heritage and the Gaeltacht to the House. This is an all Kerry job.

Mark Daly (Fianna Fail)
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Do not hold that against us, a Chathaoirligh. Mayo will definitely rise again.

I welcome the Minister to the House and I thank him for addressing this important issue, which was raised by our alleged friends in Europe in their continued attempt to harmonise our corporation tax rate with their level, thereby taking away our competitive advantage. We are well aware that the French and the Germans want to bring more control and are using this European crisis to try to force members of the eurozone and the EU into a situation whereby the financial policies of Ireland and other EU member states would be controlled by a central finance ministry. This has all the hallmarks of an attempt to create a federal state by the back door.

The EU made an attempt to bring in a constitution but this failed. It then decided to bring about a constitution by the back door when it brought in the Lisbon treaty. This did not have the backing of the majority of people, because it was not put before the people. Finally, I am sure those in favour of a federal Europe are rubbing their hands in glee. I think it was Dick Cheney who said that one should never miss the opportunity provided by a crisis.

In view of the current situation, which is changing by the hour, I ask the Minister to address the issue of where Ireland now stands on the common consolidated corporate tax base. We made a submission to Europe recently, which was the only submission made by this Parliament on proposed EU legislation. Under the Lisbon treaty we are, as a Parliament, allowed to make submissions on forthcoming EU legislation, and the only time we have done so was with regard to the CCCTB. I ask the Minster to update the House on where we are at this moment on this important issue.

Jimmy Deenihan (Kerry North-West Limerick, Fine Gael)
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I apologise for the absence of the Minister for Finance, Deputy Noonan, who sends his apologies. I thank Senator Daly for raising this important matter on the floor of the Seanad.

Senators will be aware that the proposal for a CCCTB was published on 16 March last. A CCCTB would essentially introduce new common rules for calculating company taxation across the EU and replace the universally accepted "separate accounting with arms-length pricing" method for allocating group profits across borders with a sharing mechanism under a system known as formulary apportionment. This new sharing mechanism is essentially a formula which proposes that the individual taxable profit base of each company within an international group would be aggregated or pooled to form a consolidated tax base, which would be reattributed to those same companies based on their presence in any member state, that presence being measured by the scale of assets, employees, payroll and sales in any member state compared to the group as a whole.

The Commission argues that a directive is needed to tackle tax obstacles that are barriers to the completion of the Single Market and place additional costs on businesses that trade across borders. It is worth reiterating that the explanatory memorandum to the CCCTB proposal specifically states that there is no intention of extending harmonisation to tax rates and that each member state will be applying its own rate to its own 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 in being sceptical about the CCCTB proposal, but all member states are participating in the technical debate on the dossier. As the Minister for Finance has stated on a number of occasions, despite our scepticism of the merits of the proposal, the Government's view is that it is vital that Ireland is represented in the debate, as it is only by actively engaging in the process that we can ensure all issues of concern are brought 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 impact assessment in order to assess the potential impact of the proposal on the Exchequer position, and also to determine whether the proposal is rigorous enough to stand up to the requirements of a modern corporate tax system. In support of our analysis, the Department of Finance commissioned a study on the budgetary and economic impact of the CCCTB on the European Union, which was published in January 2011. This study, combined with the study on compliance costs commissioned by the Irish Tax Institute, IBEC and the Irish Banking Federation, provides important empirical information supporting Ireland's constructive approach to the CCCTB.

Second, we are engaging in the European Council working party on tax questions as appropriate and when necessary. As the discussions on the CCCTB are thus far only in the early stages of examination, our interventions have focused on posing questions and providing observations to the European Commission. The third element of our approach is to engage with Irish business representatives and our EU partners on the dossier and examine how they consider the CCCTB proposal may affect them. Engagement with our EU partners allows us to build a pan-European picture of the potential impact of the current proposal and areas in which there may be difficulties. This last step will be important in the run-up to and during the Irish Presidency of the European Council from 1 January 2013.

All member state Parliaments are entitled to scrutinise European Union legislation in accordance with the principle of subsidiarity. The Standing Order 103 Select Committee examined the CCCTB in May and determined that it was in breach of the principle of subsidiarity. Members will be aware that the principle of subsidiarity enshrined in the treaties requires that the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the member states but would be better achieved at Union level. The select committee concluded that the EU failed to provide sufficient detail to allow national parliaments to fully assess the impact of the CCCTB; that the Commission had not established that EU legislation was justified as the best way to meet the broader objectives of the proposals and that actions by individual member states alone could suffice; that the plan would introduce a second parallel tax system within each member state, which would not improve the simplicity and efficiency of EU corporate tax systems; and that there was a concern that the proposal might suit larger member states more and did not adequately address the needs of new start-up SMEs.

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 Éireann on 20 October last, maintaining that the CCCTB proposal deals with combating tax obstacles caused by the disparities among national systems in computing the tax base among associated enterprises and that the best way to tackle those obstacles would be a common framework to regulate the computation of the corporate tax base and cross-border consolidation. It is maintained that these matters may only be dealt with by laying down legislation at Union level, since they are of a primarily cross-border nature, and that individual action by the member states would fail to achieve the intended results. A copy of that response can be made available to all Members by the Ceann Comhairle's office if requested.

The European Council conclusions of 24 and 25 March 2011 created the euro plus pact for stronger economic policy co-ordination for competitiveness and convergence. That pact, which was endorsed by all eurozone members plus Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania, includes commitments on tax policy co-ordination. As well as stating that the development of a common corporate tax base could be a revenue-neutral way to ensure consistency among national tax systems, it also acknowledged the publication of the proposal for a CCCTB. Further developments at political level took place in July 2011 when, as part of the overall package of measures agreed by the heads of state of the euro area to ensure its financial stability, we indicated our willingness to participate constructively in the discussions on the CCCTB draft directive and in the structured discussions on tax policy issues within the framework of the euro plus pact. Then, in August, Chancellor Merkel and President Sarkozy issued a joint letter to President Van Rompuy making specific reference to the CCCTB, with both leaders seeking a commitment from member states to finalise the negotiation on the Commission's CCCTB proposal before the end of 2012.

The Government's scepticism about the CCCTB is well known. Our position is that we are opposed to tax harmonisation and, based on what we know about the CCCTB, are highly sceptical of it, but we are nonetheless willing to engage with the European Commission and other member states on the issue. That engagement will include a detailed examination of all aspects of the proposal, including the issue of subsidiarity. I look forward to a continued engagement with all Members of this House as that process develops over the coming months and years.

Mark Daly (Fianna Fail)
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Obviously, I was aware of the recommendation made to the European Union by the Standing Order 103 Select Committee of the Dáil. That we lost the vote there does not bode well for the future of the consolidated corporation tax base we currently enjoy. Frau Merkel and Monsieur Sarkozy are writing common letters because they want this issue to be resolved before 2012. They want to help their own financial situations to the detriment of Ireland. It sounds like we are going down the road of a Europe dominated by two countries, France and Germany. When the Minister meets his Cabinet colleague, he should remind him of the need to build a broad coalition with other countries that have expressed concern about this. I ask the Minister to respond on this issue. Does he agree that although we have won the battle on the corporation tax rate itself, the Germans and the French are proposing to get around the issue, in effect, by formalising the consolidated corporation tax base across Europe? Essentially, Ireland will lose out in such circumstances. Will the Minister comment on that?

Jimmy Deenihan (Kerry North-West Limerick, Fine Gael)
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We have made our position quite clear. It is obvious from the Minister's reply that we are trying to protect our corporate tax base. It is the main incentive we offer people to set up in Ireland. We cannot compete with countries like India and countries in eastern Europe in terms of pay. If we did not have our corporate tax rate, which is our main advantage, we would not be doing as well with foreign direct investment. We have spelled that out on several occasions as we have reinforced what the previous Government said on the corporate tax rate. We have made where we stand on the rate quite clear to Europe. We are engaging in this process because we have decided - I remember the discussion at Cabinet level - that it is better to be on the inside than on the outside. We are engaging and reinforcing our point.

We have been good Europeans. We are very good Europeans at the moment. It is hoped that the position we are taking in the interests of the survival of the euro means that Europe will not punish us in this respect. Europe is well aware of our success in attracting American companies, especially Silicon Valley companies, to Ireland as a result of this incentive. Our engagement in this process does not threaten our tax base in any way. In fact, it allows us to reinforce our position. We need to convince people that if we did not have this advantage, we would be in a much worse position at this time. As we all know, any chance this country has of recovering is through exports. If large companies do not come to Ireland to produce goods for export, we will be at a major disadvantage. I appreciate what Senator Daly is saying. I am confident in the ability of the Minister for Finance and the Taoiseach, who have friends in Europe and an understanding of Europe, to protect the tax advantage we currently enjoy.