The Irish government has asked the European Union to amend its treaties in order to provide specific legal assurances that the country can continue to control its own corporate tax rate.
The request, which comes against a backdrop of growing calls for greater fiscal union in the EU, reflects Ireland’s concern that it could be forced to raise its ultra-low 12.5 per cent corporate tax rate – a move the government says would undermine its competitiveness and ability to attract inward investment.
In a letter to the EU presidency on September 2, seen by the Financial Times, the Irish ambassador to the EU requested that a protocol be attached to Europe’s upcoming Croatian accession treaty, ensuring that Ireland’s jurisdiction over taxation would not be compromised.
Lucinda Creighton, Ireland’s European affairs minister, told the FT that protecting the country’s low rate of corporate tax was vital to the country’s economic recovery.
“Ireland’s 12.5 per cent corporate tax rate has been a cornerstone of our industrial policy, is an integral part of our international brand, and is critical to supporting our economic recovery and employment growth,” she said.
However, Ireland’s request for treaty change on the issue has already prompted debate among other member states. Earlier this month the UK blocked discussion of the Irish request at a meeting of EU ambassadors, saying it needed more time to study the proposal. There are also concerns in Brussels that the Irish protocol could lead other member states to demand their own changes to the EU treaties.
The requested protocol would also provide legal guarantees on Irish authority over sensitive social and ethical issues such as neutrality, the right to life, family and education. EU leaders previously agreed to provide guarantees to Ireland on these issues, and on its right to retain control over its corporate tax rate, in June 2009.
But due to the lengthy timeframe involved in ratifying a treaty change, EU leaders decided to postpone ratification of Ireland’s guarantees until Croatia was due to join the EU. Following the conclusion of Croatia’s accession negotiations in July, Dublin wrote to the EU presidency to request the treaty change.
For the protocol to be ratified, all EU member states would have to vote on the issue in their national parliaments.
Dublin's letter to the EU, which includes the full text of a draft protocol drawn up by Irish officials, asks that the proposal be submitted to the European Council and notified to national parliaments as soon as possible, so that it can be ratified by EU states together with the Croatian accession treaty and enter into force by 2013.
But despite the previous commitment of EU leaders to agree to the changes, the request could prove controversial given France and Germany’s continued focus on Ireland’s low rate of corporation tax. In August, Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, proposed aligning their corporate tax rates and introducing a new EU tax on financial transactions.
Ms Creighton said the request for an Irish protocol was a separate issue to any discussion about the need for wider treaty change. She also reaffirmed Dublin’s commitment to retain control over tax rates.
“That is why at the time of the Lisbon Treaty negotiations we sought to address concerns in this area; and it is why, in the later discussions that have taken place in the context of measures to stabilise the euro and of the Euro Plus Pact, the Irish government has been absolutely firm on this matter,” Ms Creighton added.
A spokesman for the current holder of EU presidency, Poland, said on Wednesday that it had received the Irish request and would continue its efforts on the proposal.
However, it remains unclear whether the Irish protocol will be agreed before the Croatian accession treaty is signed by EU leaders in December.
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