Tax & Investment

Lisbon would open another path, and almost certainly a wider one, to EU tax harmonisation if national differences in indirect taxation are judged to be necessary “to avoid distortion of competition”(Art.113 TFEU). Harmonization of legislation on indirect taxes is mandatory under Article 113:“The Council shall adopt…” The Treaties do not define what are direct and indirect taxes; so the Court of Justice would have discretion in deciding that. There is no doubt that Ireland’s 12.5% tax rate on company profits and Estonia’s zero rate, compared with Britain’s 28% and Germany’s 32%, constitute a “distortion of competition” when one takes into account the different countries from which trade profits usually come.

This five-word Treaty amendment which would be inserted by Lisbon would enable the EU Court of Justice to apply the EU’s internal market rules on competition matters, where majority voting applies, to legislation on company taxation, although not to the actual rates, for harmonizing which unanimity would be required. This Lisbon amendment to Article 113 would open the way to Article 116 TFEU being invoked, as well as the Internal Market Articles 101-106. Article 116 reads: “Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market… it shall consult the Member States concerned. If such consultation does not result in an agreement eliminating the distortion in question, the European Parliament and the Council … shall issue the necessary directives.”

This Lisbon amendment and the Court of Justice’s involvement which it makes possible, would strengthen the Commission and the Big EU States in their plans for an EU Consolidated Company Tax Base, whereby Member States would pay profits tax in proportion to their sales or turnover in different EU countries at the tax rates prevailing in those countries. Or the Court could, for example, lay down that the Internal Market competition rules require a minimum sales tax to be applied in all EU countries. Such possible rulings by the Court of Justice, which are opened up by the Lisbon Treaty’s five-word amendment to Article 113 on taxation, would radically reduce the value of Ireland’s low company profits tax. The latter has been a key incentive in bringing foreign companies to this country and inducing many of those already here to stay here. Changes to it could also affect indigenous Irish companies. This Lisbon amendment, which was ignored by Commission President Barroso when he came to Ireland to say that our company tax rates could not be changed against our will, would be another way around the present unanimity requirement for harmonising EU laws on company tax.

Lisbon would also permit the EU to raise its “own resources” by means of any kind of new EU tax to finance the attainment of its many objectives (Art.311 TFEU). The 27 EU Prime Ministers and Presidents would have to decide unanimously what taxes to impose, and once National Parliaments approved, that would be that. There would be no need of a referendum in Ireland, for we would have permitted this development by voting for Lisbon. It is hard to imagine the 27 EU Prime Ministers and Presidents refraining from exercising this power to give the post-Lisbon EU its own major tax revenues once it is up and running under their political direction.

The Treaties would also provide for qualified majority voting on laws governing foreign direct investment (Art.64.2 TFEU) and international agreements on foreign investment(Art.207.1 TFEU). Such rules could significantly affect bodies like the IDA, which have been so important for attracting foreign investment to Ireland over the years.

admin @ May 22, 2008