Poor old Shane Ross was on the receiving end of a verbal walloping this morning, after Shane had last night characterised yesterday’s EU summit as having “crossed the Rubicon” and opened the door to an Irish default, following the acceptance of the principle of default for Greece. The response this morning (from 18:00) from Minister for European Affairs, Lucinda Creighton was that Shane Ross’s “20-second statement in which he mentioned default 20 times” was “kinda irresponsible” in its suggestion that Ireland will default. You can expect in coming days a re-opening of the debate about whether Ireland’s debt mountain is “sustainable” – the view on here is that it is not, at least in the context of an acceptable society, but the question is not black-and-white and there are respected views to the contrary, including the government’s – but one thing is for sure, debt sustainability has improved with yesterday’s summit in Brussels, and lower interest rates and longer maturities on cheap money are in themselves very welcome indeed.
Mind you, if you were to ask which of the three countries – Portugal, Ireland and Greece – got least out of yesterday’s summit, the answer is “Ireland” in that we have been given the same concessions as Portugal but unlike Portugal, we need “participate constructively in the discussions on the Common Consolidated Corporate Tax Base draft directive (CCCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ Pact framework”. And of course, unlikeGreece we can’t default on debt. What is troubling on here is that this condition applied toIreland is being waved away by Minister Creighton as if it were nothing and merely a re-iteration ofIreland’s existing position. That seems deeply disingenuous.
Fianna Fail this week again asked the Taoiseach Enda Kenny to release the text of the EU president Herman van Rompuy offer made to Enda Kenny in March 2011. Remember that was the meeting on 11th March 2011 where Enda was reported to have had a “Gallic spat” with French president Nicolas Sarkozy. The noise around this meeting has suggested that at the meeting itself, a 1% reduction in bailout interest rates was offered to Irelandin return for Irelandagreeing to discuss corporation tax arrangements, perhaps just the base. And that offer, goes the rumour, was rejected by Enda and there then followed a vitriolic argument between Enda and President Sarkozy. Fianna Fail is plainly pulling at this thread with its repeated requests for the text of the plan put forward by President van Rompuy. Indeed in this past week its leader Michael Martin told the Dail “it is unacceptable that one has to go to the mechanism of freedom of information to get this very basic information in relation to the publication of the van Rompuy offer in regard to the interest rate on 11 March”. So the question of whether or not Taoiseach Kenny accepted a deal yesterday that was similar to that offered in March might remain for some time. Also it seems that interest already incurred will not be reduced, so we may possibly overpay €40m (1% * €9bn recd from EFSF/EFSM in Jan/Feb * 5 months) by having failed to agree to the deal in March.
It is also confusing to hear Fine Gael claim that its position hasn’t moved on CCCTB, and that it always stood ready to discuss this pan-European initiative on taxes. Lucinda Creighton said this morning (from 20:00 on) “And we’ve committed to that [engaging positively in discussing CCCTB] all along. There’s absolutely nothing new in relation to the [INTERJECTION: it’s just diplomatic language?] the so-called common consolidated corporate tax base. This is a proposal that was launched in March. We said at the beginning as we do with all Commission proposals that it is a proposal, we will participate in the discussions, it would be ridiculous for us to shut ourselves outside of the door and have nothing to do with the discussions. We want to influence them. We have a skepticism over it. We have a serious skepticism over the proposal”. But that is rubbish. The Irish Times reported on 12th March, 2011 “Taoiseach Enda Kenny pledged as he arrived in Brussels that he would resist the creation of a common consolidated corporate tax base (CCCTB) because that would introduce tax harmonisation by the “back door”. In a separate article on 12th March, 2011 the Irish Times reported Enda as saying “in respect of both the CCCTB and the corporation tax rate, that for me this was an issue that I couldn’t contemplate. But I did say that in respect of other elements of the pact [the Euro Plus Pact] I would of course engage constructively with our colleagues around the table” and “Mr Kenny said he offered to engage constructively on the “language about tax” in a new euro zone competitiveness pact, but specifically tied that to the ECB’s scrutiny of the banking situation.” Reuters reported “during talks inBrussels earlier this month, Kenny ruled out engagement on CCCTB, describing it as “the harmonisation of the tax rates by the back door”.” And Lucinda would have us think nothing changed yesterday?
So what is CCCTB and the Euro Plus Pact, in respect to which we have committed to constructively participate in discussions? The Euro Plus Pact was a joint French-German proposal in February 2011 to improve competitiveness and fiscal management in Europe – both concepts in principle to be welcomed by Ireland. In addition, the Pact proposed to develop a common consolidated corporate tax base (CCCTB) which is something opposed by Ireland. The CCCTB was separated out from the Pact and was the subject of a draft Directive from the European Commission on 16th March and, in summary, the “Counsel Directive on a Common Consolidated Corporate Tax Base” (CCCTB) enables multinational groups of companies, operating in different EU member states, to submit a single EU-wide tax computation to a single EU revenue authority, with the resultant tax then apportioned to the member states in which that group operates. So Google for example which has a base inIreland and smaller offices elsewhere in Europe but which generates sales across all of Europe, might submit its tax return to an authority based inBrussels that would then divvy out the tax to different European countries.
The arguments in favour of CCCTB are (a) this will be simpler than agreeing separately the tax liability with each and every member state in which the group operates; (b) it will reduce compliance costs and (c) it will eliminate tax avoidance measures like transfer pricing and profit shifting as potential gains and losses arising from internal trading within the group will be eliminated on consolidation of the accounts at a European level.
Once the profit has been determined an “apportionment mechanism” will share the tax amongst to the member states in which the particular group operates based equally on three factors: (i) payroll and headcount; (ii) sales revenues; and (iii) property (excluding intellectual property).
Effectively therefore, while the EU argues that CCCTB will not have any influence or jurisdiction over national CT rates, the “apportionment mechanism” means that tax apportioned to the member states will not be related to the profit generated in the respective members states, but to “apportionment factors” (i.e. 2/3 of the total consolidated tax would remit to the region with the greatest number of workers and plant, regardless of Gross Value Added or profitability). This will renderIreland’s CT rate largely meaningless with respect to the activities of multinationals, since firms would have an incentive to build up “apportionment factors” in low-tax areas, leaving only sales in high tax environments. Effectively, under CCCTB high-volume/low value employment low tax regions will
It seems agreed that CCCTB will significantly disadvantage Ireland where our 12.5% CT rate is low and where the tax regime is focused on attracting high Gross Value Added employment activities, including R&D and sales, but where associated manufacturing operations are often undertaken in other, low-cost regions.
It is also feared that the harmonised tax base is the first step towards an EU-wide CT rate – “harmonisation by the back door” as Enda Kenny called it in March 2011 when he ruled out the engagement, on which yesterday he U-turned, and has now agreed to constructively participate in discussions. Worrying forIreland, and unsettling that there is a denial that our position has changed, which it plainly has.
NAMA Wine Lake 
Your question in the title about when the CCCTB changed? Probably about the same time the Government decided they didn’t make any promises to maintain services at Roscommon hospital. Now Gilmore wants everybody to put on the green jersey. They have become Fianna Fail.
It’s good that they managed to secure a better rate but the savings will barely dent that deficit.
Has the stance changed since this?
http://in.reuters.com/article/2011/03/21/ireland-tax-idINLDE72K17920110321
@D_E, I take your point, but that position is different to the position taken by An Taoiseach on 12th March and indeed, thanks to Pat Leahy in the Sunday Business Post who rooted out the quotation (http://www.sbpost.ie/news/ireland/kenny-said-eu-tax-base-plan-was-harmonisation-by-the-back-door-57686.html) , seems different to the Government position in May – here’s Enda’s exchange in the Oireachtas on 18th May
Deputy Micheál Martin: Yesterday the Dáil unanimously passed a resolution asserting our belief that the European Commission’s proposals on the common consolidated corporate tax base infringes the core principle of subsidiarity. It did this on the basis of an all-party committee report, which is a credit to the various Deputies who participated on it. One of the serious points that arose during the debate was the manner in which the position of the Minister for Finance changed because of the committee’s work. His opening position was that the CCCTB did not infringe subsidiarity and he changed this only in the light of the work and the unanimous findings of the committee members. However, many people are confused as to what the Government’s position is on CCCTB. It has gone from the clear outright opposition of last year to something described by Ministers and the Taoiseach as sceptical negotiation to constructive engagement. We would all agree that this is essentially having no impact on the negotiating position and has given the impression to others, including France and Germany, that we are open to trading on a fundamental issue such as the harmonised consolidated tax base.
Because it threatens to destroy more than €4 billion in national income, the corporate tax base is as much a threat as a higher rate. We know the Government’s policy on one but we do not know its policy on the other. Every other government is clearly tabling its position on the tax base across Europe. The Dáil has taken a clear position on the tax base. Will the Taoiseach now go beyond the general ambivalent stance and the ambivalent generalities in which he has engaged up to now on the issue and tell us exactly the Government’s position, what it is prepared to put on the table and what it offers to accept?
The Taoiseach: I will. The position as far as the Government is concerned about CCCTB is very clear; there is no ambiguity here. The CCCTB is a method of tax harmonisation by the back door. It is bad for Ireland and bad for Europe. I will not sit at the table of leadership at European Council meetings and not say anything when a paper tabled by the Commission on CCCTB is being discussed. It is its right, legal duty and responsibility to publish papers or legislation, but I will not sit at the table and say nothing about this. What I will say is what I have just said to the Deputy. I do not believe in CCCTB and I do not support it. I have a very healthy scepticism about it. I hope I make myself clear in that regard.
Deputy Micheál Martin: Information on Micheál Martin Zoom on Micheál Martin Does that mean in essence that the Government will veto any attempt to introduce CCCTB across Europe? The Government has ranged from scepticism to engagement to constructive engagement and so on.
Deputy Micheál Martin: We all know the financial support programme is important to the country. It is agreed across Europe that these financial frameworks and support programmes should be sustainable. The communiqué on 11 March was very clear on the matter, but nothing has happened on the Irish programme. Nothing has moved towards a conclusion on the Irish programme. The evidence coming back every day is that either Germany or France in particular has been encouraged to keep pushing Ireland for unreasonable concessions on the issue of not just the tax rate but the base because of what appears to be a changed negotiating stance on the part of the Government. The bottom line from Europe seems to be that either it wants Ireland to recover in a way which helps everyone or it does not.
Deputy Micheál Martin: We must put that very strongly to Europe. We have now had five or six weeks of briefings on this. When will the issue relating to the change in the Irish programme, particularly the reduction in the interest rate, reach finality?
The Taoiseach: The Deputy and I campaigned on the Lisbon treaty. We gave the people specific assurances about tax competency being a national issue. The Government does not support the introduction of CCCTB on the basis that the Government believes it is tax harmonisation by the back door. The Government believes that CCCTB is bad for Ireland and bad for Europe. I will articulate that very clearly when it comes before the Heads of Government meeting at Council level. The governments of other countries share this view very strongly. The Deputy is aware that under the euro-plus pact it is possible for other countries to move to an enhanced co-operation position. I will not say here in the Dáil that I do not support CCCTB and then go and articulate a different position at the Heads of Government meeting.
In so far as the conclusion to the question of a reduction of interest rate is concerned, there has been quite a deal of speculation about every meeting that this will bring it to a conclusion — I have never said that. The point is that the authority was given to the ministers for finance to continue negotiations on this. I would like to see it brought to a conclusion and I would like to see an interest rate reduction applied to Ireland, but I cannot give the Deputy a date as to when that will finally be concluded. As the Deputy is aware, the Heads of Government agreed in principle that countries within the EFSF bailout system should have and could have an interest rate reduction applied to them. Ireland is in that position and authority has been devolved to the Ministers for Finance to continue negotiations in that regard. I recognise the Deputy has been supportive of this process. However, I am not in a position to give the House a definitive date as to when the matter will be finally concluded.
The conditions for the bailout scheme were put together by the Troika, namely, the IMF, the European Union and the European Central Bank, and also by the Government. Elements of it have been changed in respect of the minimum rate and also by the Government by way of the jobs initiative. Other countries may wish to impose conditions on Ireland that are not being imposed on any other country, which is not helpful.
http://debates.oireachtas.ie/dail/2011/05/18/00003.asp
Given the ease with which previous statements and newsreports can be recovered on the internet, why do political figures still try to get away with denying what they previously said?
Since they’re not stupid they must assume that the media and the electorate are.
Prediction: the rate is headed for 15%
Headed for 15% may not be a bad thing. Can’t believe an Irish paper printed this. It’s brilliant!
http://www.independent.ie/business/foster-homegrown-enterprise-and-we-will-pay-our-own-way-2827303.html
Look at countries that we should want to emulate like Israel or Taiwan. They share a lot of characteristics with Ireland. They’re small countries with no natural resources on the edge of continents. They don’t rely on 12.5% corporate tax rates for survival. They innovate and they take risks, although not with ‘other peoples’ (German) money.
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Engaging with it doesn’t mean any changes will be accepted. Consultants will be appointed by the Irish govt, they’ll say the proposal’s a bad idea and in the national interest we’ll have to reject any proposed CCCTB. Welcome to politics. It’s a move designed to save Sarkozy’s face, rather than commit Ireland to anything.
@Neil, have you researched the reaction in the French media to last week’s summit “deal” and the commitment given by Ireland? Do you think the French media has failed to challenge your interpretation of events with the President?