Wednesday, May 28, 2008

Lisbon means higher taxes

The Yes side want you to believe that our low corporate-tax rate of 12.5% is safe from further encroachment by Brussels should the Lisbon treaty pass in the referendum of June 12th. Even the Referendum Commission wants us to believe that our national veto will be maintained. But the credibility of their arguments is open to debate. I for one am far from convinced. My reasoning is twofold. Firstly, the Eurocrats, unlike the Government and the "Yes" parties, have no reticence about openly calling Ireland's 12.5% rate a 'distortion of competition' and calling for tax-harmonisation. And secondly, the contents of the Treaty in relation to taxation, combined with the stated intentions of the European Commission to harmonise the corporate-tax base, give serious cause for doubt as to how credible the reassurances of the yes side and their hangers on in the state-agencies and Eurofederalist media are.

For a start, I would draw my readers attention to the provisions of the Lisbon Treaty on tax-harmonisation and a mechanism called Enhanced-Cooperation. While the Commission is correct that technically, Ireland retains the national-veto on our participation in tax-harmonisation at the Council of Ministers, Commission President Barroso and EU Tax Commissioner Laslo Kovacs have openly stated that Ireland will be unable to stop other member states from using a mechanism called Enhanced Cooperation to forge ahead with harmonisation on their own. Under Enhanced-Cooperation, 9 or more member states, with the consent of the Commission, may press ahead with harmonisation on their own, including in the field of taxation. Commissioner Kovacs, the Hungarian representative on the Commission, has openly stated that two-thirds of member states support his plans for a "Common Consolidated Corporate Tax Base", and that if necessarily he will invoke Enhanced Cooperation to get around a national veto by a member state like Ireland.

It is important in that respect to refer to the provisions of the Treaty both on Enhanced-Cooperation and on taxation. Article 113 of the Treaty states that the Council may harmonise indirect and turnover taxes to combat "distortions of competition". While the "yes" side may have a point in arguing that this would not lead to the harmonisation of the corporate-tax rate, it could have the effect of neutering its relevance and our ability to use it to attract multinational investment in Ireland. This is because of the form Commissioner Kovac's plans will take. The plans include a proposal that companies will be taxed on the basis not of where they are based, but rather on the basis of where the sales take place. As such, because 90% of what the Irish economy produces is exported, this could force Irish companies to pay most of their taxation to the governments of our export-markets, such as France, Spain, Italy, and the UK. Ireland's attractiveness to multinational-investors is based largely on our ability to provide a low-tax-base as a springboard to export competitively to the EU market. Were multinationals required to pay the punitive Franco-German rates of taxation despite operating out of Ireland, then our low corporate-tax rate would lose its relevance, and to all intents and purposes we would be powerless to retain their investments in our economy.

The text of the new Article 113 is as follows:

The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.

Given the reference above to unanimity, things may seem fine. But they are not, as the provisions contained in Article 10 on Enhanced Cooperation make clear:

1. Member States which wish to establish enhanced cooperation between themselves within the framework of the Union's non-exclusive competences may make use of its institutions and exercise those competences by applying the relevant provisions of the Treaties, subject to the limits and in accordance with the detailed arrangements laid down in this Article and in Articles 280 A to 280 I of the Treaty on the Functioning of the European Union.Enhanced cooperation shall aim to further the objectives of the Union, protect its interests and reinforce its integration process. Such cooperation shall be open at any time to all Member States, in accordance with Article 280 C of the Treaty on the Functioning of the European Union.

2. The decision authorising enhanced cooperation shall be adopted by the Council as a last resort, when it has established that the objectives of such cooperation cannot be attained within a reasonable period by the Union as a whole, and provided that at least nine Member States participate in it. The Council shall act in accordance with the procedure laid down in Article 280 D of the Treaty on the Functioning of the European Union.

3. All members of the Council may participate in its deliberations, but only members of the Council representing the Member States participating in enhanced cooperation shall take part in the vote. The voting rules are set out in Article 280 E of the Treaty on the Functioning of the European Union.4. Acts adopted in the framework of enhanced cooperation shall bind only participating Member States. They shall not be regarded as part of the acquis which has to be accepted by candidate States for accession to the Union.

Now obviously, these issues are open to interpretation, but given the feeling of many Nice referendum yes voters that we were had by subsequent events which disproved reassurances from our political-elites prior to that vote, I think we are entitled to hasten slowly before rushing into further largescale European integration. My central concern is not the risk that a harmonised corporate-tax rate could be imposed on Ireland - while not impossible I think this is fairly unlikely. The main danger, as already mentioned, is that in the context of Enhanced Cooperation, 9 or more countries may proceed with plans for a harmonised corporate-tax base amongst themselves, which would force companies based within and outside the CCCTB area to pay their taxes proportionately to the governments of the states in which their sales tax place. In all likelihood, this would lead to a struggle culminating in an Irish government challenge to CCCTB in the European Court of Justice. My suspicion is that the ECJ could well find against Ireland in this circumstance, invoking Article 113 provisions on harmonisation of turnover-taxes to combat "distortions of competition". In this scenario, our corporate-tax rate of 12.5% would constitute the "distortion", and CCCTB/destination-taxes would constitute harmonisation of turnover taxes to rectify the situation by providing a more 'even playing field' in terms of competition for multinational investment. This is my personal belief on where Lisbon will take us. It provides the weapons to the armoury of our longtime critics and supporters of the CCCTB plan including President Sarkozy of France and Chancellor Merkel of Germany, longtime critics of Ireland's low-tax policy that has attracted massive FDI to our economy that they and many other EU member states are casting envious green eyes upon.

Protect Ireland's right to decide our own rates of personal and corporate-taxation. Say no to Lisbon - while you still can say yes or no to EU measures at all.

1 comment:

Jer said...

I dont see how Ireland will do anything but suffer should or ecomnomic policy be forced to align with a general policy designed to boost the Franco-German economies. For Europe but against this treaty just like the French and the Dutch