EU reform plan will deliver a fatal blow to economy

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CCCTB. Get used to these letters — you will be seeing and hearing them a lot in the coming weeks. CCCTB stands for the Common Consolidated Corporate Tax Base.

According to the European bureaucrats proposing it, this is merely about bringing simplicity, reducing compliance costs and it will involve a lower rate of tax.

The reality is very different. It is simply about competition for Foreign Direct Investment (FDI). This is an area in which we lead the rest of Europe and it is how we will produce jobs for the future. Concede ground on this and the corporation-tax battle is over. It is as simple as that.

The politics of this are even cruder. Both Sarkozy and Merkel will face their very unhappy voters soon. To appease their irate electorates, they have once again decided that Ireland must be the whipping boy for their woes and have determined to make us raise our corporation tax. This Common Consolidated Corporate Tax Base is their Trojan horse.

So why is it such a threat?

Without getting bogged down in detail, the core problem is about the reallocation of company profits to where the sales are. If accepted, any company that locates its headquarters here with a view to selling overseas will see its income allocated to the other countries in which it trades, instead of being able to attribute its profits to Ireland, and pay tax to the Irish Exchequer at 12.5 per cent. As a result, the balance between rich and poor will be redressed in reverse.

The allocation rules will be drawn up by the EU. Any problem with their interpretation will be decided by an EU court. It does not require the wisdom of Solomon to conclude that this will fundamentally and fatally undermine the attractiveness of Ireland’s corporation tax regime.

An Ernst and Young study found that the corporate income tax burden would actually increase under a CCCTB. This was largely due to the allotment mechanism that means a greater proportion of income would be apportioned to, and taxed in, member states with higher corporate tax rates.

FDI has been the generator of a great deal of our wealth. Sarkozy and Merkel know that the uniquely high level of direct investment that has flowed into the country –, particularly from the US — is inextricably linked to our single, simple rate of corporation tax.

The regime, which has been in place for 14 years, has become a brand: it is administratively simple and it is certain. These are the twin attractions of the Irish corporation tax regime. That certainty would be removed if the rate was changed.

There are siren voices both here in Ireland and in the EU who say that a modest increase in the rate will not have any adverse impact. They are wrong. That proof was provided last Thursday with the announcement by the WPP advertising agency that it would be moving its tax base from Dublin back to London following the UK’s announcement that it will lower its rate from 28 per cent to 23 per cent by 2014.

Recent OECD studies show that a 1 per cent increase in corporation tax in this country would lead to a 3.7 per cent decline in FDI.

While the Taoiseach has made some bold statements on CCCTB representing tax harmonisation via the back door, other members of the Government have been far less clear.

This is not a time or an issue for weasel words.

There is no miserly concession the Franco-German axis could offer that would make it worthwhile engaging with the concept of a CCCTB. Only a Cabinet of kamikazes could engage with something that will deliver a potentially lethal blow to the heart of the economy.

We persuaded the Irish people to vote in favour of a number of referenda on foot of assurances to the effect that our tax system would remain within our control. The people kept their side of the bargain and it is now time for others to do likewise.

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