Vol. 483 No. 1
16 Mr. Noonan asked the Minister for Finance the progress, if any, he has made in getting the European Commission to agree to a standard corporate tax rate of 12.5 per cent; if his attention has been drawn to the views of Commissioners Monti and Van Miert on this proposal; and if he will make a statement on the matter. [19763/97]
In May the previous Government announced plans to introduce a single 12.5 per cent rate of corporation tax for trading profits and a higher 25 per cent rate for non-trading profits on the basis that this would be phased in over the coming years to eventually replace the current regime.
As has been the practice with previous decisions in relation to the 10 per cent rate of corporation tax for manufacturing, the Commission was informed of the Government decision shortly after its announcement in May. Separate meetings have been held with Commissioner Van Miert, who is responsible for EU Competition and State Aid rules, and with Commissioner Monti, who is responsible for taxation. In the light of the discussions which have taken place to date with two commissioners, I am satisfied that a standard low rate of corporation tax for all sectors of the economy will not run into difficulty vis-a-vis EU State aid rules, nor should it be affected by the proposed EU code of conduct on business taxation which is currently under discussion.
Commissioner Van Miert has sought clarification on certain aspects of the phasing in of the new regime, including transitional arrangements, and this is the subject matter of the discussions. However, the particular rate of corporation tax is not an issue in these ongoing discussions.
As regards the code of conduct, this is due to be considered by the ECOFIN Council in December and the proposal is for a voluntary code of conduct which would fully respect the principle of subsidiarity in taxation matters and would not interfere with a member state's right to set its own general taxation levels. It is proposed that the code would address certain aspects of business taxation which may be harmful to the Community interest. The focus would be on special measures or schemes which provide a low effective tax rate relative to the general business tax rate in the country in question and which involve other special features of a potentially distortionary nature.
May I take it the Minister has abandoned the commitment in the programme for Government to seek a standard tax rate of 10 per cent, that the negotiations being conducted in Brussels are proceeding on the basis of a lower standard tax rate of 12.5 per cent and that what is at issue are the mechanisms by which this rate will be phased in?
The Government is dealing with the Commission on the basis of the outgoing Administration's decision of last May. The level of taxation is not under discussion in Brussels. What is at issue are the transitional arrangements that will apply in moving from the current general level of corporation tax to the new single lower rate. On budget day I will announce the Government's intentions.
U-turn No. 53.
I thank the Minister for confirming the negotiations are proceeding on the basis of a lower rate of 12.5 per cent rather than 10 per cent. This is another U-turn. We should be thankful if we can succeed in securing a rate of 12.5 per cent as long as we do not get into greater difficulty by the Minister's party reopening the issue. Is the Minister aware the Commission has agreed to a paper submitted yesterday by Commissioner Van Miert, the essential element being that a favourable lower tax rate, even to manufacturing industry, is deemed to be a state aid and consequently falls within his remit and it is his strong view that it should be harmonised in line with the harmonisation of state aids for industry across the Union? To put it more succinctly, is the Minister aware the Commissioner's colleagues have agreed to this?
The Commission cannot object to a common lower tax rate which remains within the competence of member states.
It can object to state aid.
In my discussions and those of my colleagues in Brussels the issue of a single lower tax rate, be it 10 per cent or 12.5 per cent, has not been raised.
It is 12.5 per cent.
What is at issue are the arrangements that will apply in moving from the general rate of corporation tax here to the new single lower rate. Discussions are ongoing with Commissioner Monti on the code relating to business taxation — I hope this matter will be disposed of at the December ECOFIN Council — and with Commissioner Van Miert who has responsibility for state aids. With the Tánaiste, I have met Commissioner Van Miert to discuss the matter. Discussions have been ongoing for several months between officials on the transitional arrangements that will apply.
Is the Minister aware of a report in today's edition of The Irish Times by its European correspondent, Mr. Patrick Smyth, which indicates that Commissioner Van Miert won backing yesterday from the Commission for a paper which describes what he sees as his mandate to crack down on new preferential company tax regimes — whether sectoral or geographical — which distort competition? Is the Minister also aware that, according to the report, the Commission will assure coherence and equality of treatment of member states when they use fiscal measures as state aids? Is the Minister further aware that Commissioner Van Miert expressed the view subsequent to the meeting—
It is not in order to quote from newspapers at Question Time.
I am not quoting, I am paraphrasing.
It is not in order to do so.
To paraphrase?
It is in order to ask a supplementary question.
Under which Standing Order?
The Deputy should not challenge the ruling of the Chair. It is in order to ask a supplementary question but not to quote from newspapers.
We are all aware of the Standing Order which states that one cannot quote at Question Time but I have not come across any precedent which supports your assertion that one cannot paraphrase in putting a question to a Minister.
I am endeavouring to have as many questions as possible answered.
I would agree with you if you had included the word "satisfactorily". I would like to see as many questions as possible answered satisfactorily but I will not agree to a procedure which allows a Minister to answer in any way he or she likes and the Chair to move on to the next business. We have few enough rights in this House, one of which is to frame a question as we see fit and expect an answer.
It is my job to accommodate as many Members as possible so that their questions can be reached.
I do not think that is your mandate, your mandate is to ensure Ministers are accountable at Question Time.
I have no control over the way Ministers answer questions.
If you had not interrupted we would be finished by now.
The Deputy cannot quote from newspapers.
I have not quoted.
The Deputy has given the Chair the clear impression—
I am using the newspaper as a prompt. I am paraphrasing correctly.
Inspired paraphrasing.
I ask the Deputy to proceed by way of supplementary question.
I am not doing anything that has not been done several times previously but I will always obey the Chair's instructions. Are you telling me that the Minister does not have to reply to my question?
I did not say that. The Chair has no control over whether the Minister replies.
The Minister always replies.
The Chair cannot force the Minister to reply. That is not the role of the Chair.
Can I recommence putting the question on the basis that you will not interrupt me again?
The Chair will correct the Deputy when he is not proceeding in accordance with correct procedure.
The Chair seems to have done some kind of FÁS course on procedure in the past week and is suddenly diligent beyond belief and precedent.
The Chair is trying to accommodate as many Members as possible.
Is the Minister aware that Commissioner Van Miert has successfully convinced his colleagues in the Commission that beneficial tax regimes in the corporate sector should be treated by the Commission as state aids to industry and that as a consequence a corporate tax rate of 12.5 per cent is an issue for him, not Commissioner Monti?
The Deputy is misinterpreting the report from Brussels—
I cannot quote it.
The Deputy and the Chair seem to be getting on exceptionally well today. I would not like to interrupt the debate between them. The manufacturing tax rate of 10 per cent was accepted by the Commission as a general taxation measure whereas the 10 per cent rate for IFSC and Shannon based companies was accepted as a state aid. The Government of the day had to apply to the Commission to obtain approval of the IFSC's 10 per cent rate by way of written opinion. The Commission deemed it acceptable that the 10 per cent rate in respect of the IFSC and Shannon should apply up to the year 2005, which was to be regarded as or within the context of State aid. As my predecessor will know, never until late in 1996 did the Commission indicate that the 10 per cent manufacturing tax rate might to be regarded as general State aid. Late in that year we were put on notice by the Commission that this was the manner in which that 10 per cent manufacturing rate might be construed.
It was resisted.
Yes, I know Deputy Quinn made that clear on many occasions. As a result, the then Government, in which Deputy Quinn was the Minister for Finance, began some work on this matter. It had been accepted over those years that our general corporation tax rate would be reduced from 50 per cent to 40 per cent, which obtained for a long time, then to 38 per cent and to its present level of 36 per cent.
Resulting from much work and negotiations undertaken by the Departments of Finance and Enterprise and Employment, Deputy Quinn's Government submitted a proposal to the Commission that in future—
We informed them of the decision.
—the new rate would be 12.5 per cent for trading income and 25 per cent for passive income and that the Irish Government would reduce its general tax rate over a period of years. Commissioners Van Miert and Monti were informed at that time.
The interim negotiations on transitional arrangements dealt with how that reduction would be applied. I can assure the Deputy that each member state has a legal right to set its general rate of business or personal taxation. Therefore, a possible interpretation of what Deputy Quinn read yesterday — I do not suggest it was his — should not be taken to mean that the Commission has the right to dictate to any member state its business tax rate.
When the general level of Irish corporation tax is reduced from its present rate to the new single low rate it will be within our competence to apply it. What is at present being negotiated by Commissioners Van Miert and Monti is the manner in which we should go about that process. Whether the single low rate should be 10 per cent or 12.5 per cent has not been raised with either Commissioner. What is at issue is how we proceed from a high general rate to the new single low one. That new rate will be announced by me on budget day.
