Vol. 498 No. 6
1 Mr. Noonan asked the Minister for Finance if he will give an assessment of the threat to the Government's policy to introduce a standard rate of CPT at 12.5 per cent arising from his bilateral meeting with the German Finance Minister and the discussions which took place on anti-competitive business tax policies at the Vienna Summit last week; and if he will make a statement on the matter. [28067/98]
I do not regard the single low rate of corporation tax as under threat for several reasons. First, as the Deputy is undoubtedly aware, the German Ministers are now talking about tax co-ordination and not tax harmonisation. Second, at the Vienna Summit, the agreed Conclusions were as follows and I quote:
The European Council welcomes the report of the Council on reinforced tax policy co-operation and emphasises the need to combat harmful tax competition. Co-operation in the tax policy area is not aiming at uniform tax rates and is not inconsistent with fair tax competition but is called for to reduce the continuing distortions in the single market, to prevent excessive losses of tax revenue or to get tax structures to develop in a more employment-friendly way.
In particular, the European Council:
welcomes the fact that the work of the Code of Conduct Group has proceeded satisfactorily and encourages the Group to conclude its work at the latest by the Helsinki European Council; asks the Commission to submit a study on company taxation to the Council in accordance with the ECOFIN Council conclusions;
The European Council invites the Council to submit to it a second progress report on tax policy co-operation in time for the European Council in June 1999.
At my meeting with Mr. Lafontaine in Bonn prior to the European Summit in Vienna I made a number of points: I stated that each country has a fundamental democratic right to decide on its own tax policy in accordance with the wishes of its electorate; as regards business taxation, I favoured the route proposed by Commissioner Monti, which was the Code of Conduct Group; our corporation tax system was transparent and although the rate was low it was levied on a very wide base. In contrast, Mr. Lafontaine stated recently that Germany had the lowest effective tax rate in Europe.
I emphasise again that our proposed new standard rate of corporation tax of 12.5 per cent across the board is in line with the EU Code of Conduct and in accordance with the agreement on corporation tax reached with the EU Commission last July.
When the Minister made those points to Mr. Lafontaine what was his view on our 12.5 per cent corporation tax rate?
Mr. Lafontaine did not express any view on our 12.5 per cent corporation tax rate at the meeting I had with him in Bonn last week. He was reported in other fora as having made comments on Ireland's corporation tax regime, but he did not make any comments on it during last Wednesday's meeting in Bonn.
Is it the Minister's intention that the 12.5 per cent corporation tax rate, which will come into force here following reductions on an instalment basis, will apply to the retail and agricultural sectors? Is that in accordance with what he expects to be the central element of the code of conduct?
One would not want to confuse the Code of Conduct Group and its review mechanism with the Irish agreement to set a single low rate of corporation tax of 12.5 per cent on 1 January 2003. As I pointed out in my Budget Statement and on previous occasions, it is my intention to have a single low rate of corporation tax of 12.5 per cent for all businesses except on non-trading income. I gave some outline in the Principal Features of the budget on the areas I consider could be regarded as non-trading income for inclusion in next year's Finance Bill.
The 12.5 per cent rate will apply to the retail and agricultural sectors because the outline I gave in the Principal Features of the budget indicated that sectors such as those will come under the 12.5 per cent regime and they are not in the non-trading income area to which the 25 per cent rate will apply.
