Dáil Éireann debate -
Tuesday, 17 May 2011

Vol. 732 No. 3

Report of the Standing Order 103 Select Committee: Motion

Deputy Charles Flanagan

I move:

That Dáil Éireann:

(1) notes the Report of the Standing Order 103 Select Committee on the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base (COM(2011)121) which was laid before Dáil Éireann on 12 May, 2011 in accordance with Standing Order 105(3)(b);

(2) having regard to the aforementioned Report, and in exercise of its functions under section 7(3) of the European Union Act 2009, is of the opinion that the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base does not comply with the principle of subsidiarity for the reasons set out in paragraphs 6 to 10 of the Report, and

(3) notes that, pursuant to Standing Order 105(3)(d), a copy of this Resolution together with the aforementioned Report shall be sent to the Presidents of the European Parliament, the Council and the Commission.”

I am pleased to move the motion on the Order Paper in my name and on behalf of the Select Committee on the Proposal for a Council Directive on a Common Consolidated Corporate Tax Base, which is commonly known as the CCCTB. Under new provisions set out in the Lisbon treaty, each national parliament has eight weeks from the publication of proposed new EU legislation to consider formally if it complies with the principle of subsidiarity. That eight week deadline concludes tomorrow and seven other national parliaments are expected to agree reasoned opinions by then that the draft directive breaches subsidiarity.

In the EU context, subsidiarity is a concept about the level of governance, whether EU, national, regional or local, at which action should be taken. It is based on the presumption that action should be taken at the lowest level of governance consistent with the subject matter and the objective to be attained. The subsidiarity principle acts as a check on the need to take action at Union level and ensures that, where it is needed, effective action is taken at the EU level.

Having considered the proposal in great detail, the recommendation of our committee is that the proposal breaches the principle of subsidiarity for the reasons set out in paragraphs Nos. 6 to 10 of our report. If the draft reasoned opinion is agreed by the Dáil, it will constitute the House's formal response under the Lisbon treaty.

This proposal has had a long genesis going back as far as 2001. The European Commission first made clear in a communication in October 2001 that it hoped to introduce harmonisation of direct taxation for companies, in particular by establishing a common consolidated corporate tax base. In further communications in April 2006 and May 2007, it reported on efforts to develop a proposal for a CCCTB. In February 2007, in its annual policy strategy for 2008, the Commission announced its intention to introduce a legislative proposal for a CCCTB in 2008. The draft directive published on 16 March this year is finally the culmination of that process.

Since 2001, previous Irish Governments consistently made it clear that direct taxation is primarily a matter for member states and fair tax competition, not tax harmonisation, was the basis on which the EU could compete with the rest of the world. In that context, it is not surprising that the draft CCCTB directive has met opposition in Ireland among the business sector, political parties, and policy makers. Within a week of the publication of the directive, a Private Members' motion was discussed in the Dáil on 22 and 23 March. Opposition was expressed on all sides of the House to any efforts to interfere with Ireland's right to set its own corporation tax rates, and the Dáil recognised the Government's sceptical view of the CCCTB proposal.

The specific policy objectives of the directive, as expressed by the Commission, are to eliminate the remaining tax obstacles in the internal market, to reduce compliance costs for companies trading internationally and avoid instances of double taxation or over-taxation, and to reduce tax distortions in investment decisions. The CCCTB proposes that companies would be able to opt for a single set of rules within the EU to calculate their taxable profits. The CCCTB would allow companies to consolidate all profits and losses across the EU, thereby recognising their cross-border activity. The single consolidated tax return would be used to establish the tax base of the company, after which all member states in which the company is active would be entitled to tax a certain portion of that base, according to a specific formula based on three equally-weighted factors, namely, assets, labour and sales. This would all be done through the tax authorities of the company's principal member state, by means of a one-stop-shop.

The Dáil set up the select committee at its first sitting after the election on 9 March. The committee was given responsibility to carry out the parliamentary functions associated with the Lisbon treaty and legislated for in the European Union Act 2009. It is an interim committee pending the setting up of the new committee system for the 31st Dáil. The committee met first on 21 April for an initial assessment and decided that the CCCTB proposal required detailed scrutiny, given its potential implications for subsidiarity. The committee met in public session with the Department of Finance at its second meeting on 4 May to assess the proposal in detail. This was very informative and we are grateful to the officials for engaging openly with the committee on that occasion. It was stressed to the committee that the Minister for Finance remains very sceptical about the CCCTB proposal. The Government is totally opposed to tax harmonisation and is determined to protect Irish interests in the substantive negotiations that will take place on this proposal.

The Department of Finance commissioned an independent study by Ernst & Young, which was published in January of this year. The study finds that the proposal will disproportionately lead to winners and losers among member states. Most worryingly, Ireland is identified as one of the group which would experience reductions in GDP, employment and foreign direct investment.

It was clear from our meeting with the Department officials that this proposal has little, if any, benefit for this country, or indeed for a number of other member states. As stated by one official: "As evidenced by our economic impact assessment, the Commission's proposed cure could be worse than the disease."

The committee met last week for the third time and agreed the report now being debated which finds that the proposal breaches the principle of subsidiarity. The committee has produced a clear and concise report which sets out the grounds for the Dáil to send a reasoned opinion under the provisions of the Treaty of Lisbon. This will be the first time the Dáil has considered the adoption of a reasoned opinion under the treaty.

For the benefit of the House, I will summarise briefly the reasons the committee came to its conclusion. First, the Commission has not adequately met the procedural requirements in the treaty — Article 5 of Protocol 2 — to provide a detailed statement with sufficient quantitative and qualitative indicators to allow national parliaments to assess fully all the subsidiarity implications in a cross-border proposal of this nature. Second, it is not established by the Commission's impact assessment that EU legislation is entirely justified as the best way to meet the broader objectives of the proposal — much of the justification for the proposal is based on assumptions and there is insufficient data available on the implications of this new policy. Third, it is clear from the impact assessment that the proposal may have significant and possibly unequal cost implications between individual member states but there is little clarification as to why this is regarded as a necessary policy outcome. Fourth, this is, in effect, asking member states to agree to legislate based on a leap of faith to redistribute the EU corporate tax base amongst member states based on new allocation factors. Fifth, there is also a potential blurring of the competency responsibilities involved. Under the treaties the Commission does not have competence in the area of direct corporate tax. No EU legislation should be proposed that indirectly impacts on national sovereignty as a means of remedying any negative financial impact.

The procedure set out in the Treaty of Lisbon is that if one third of national parliaments send reasoned opinions — under the yellow card procedure — indicating that the proposal does not comply with the principle of subsidiarity, the draft directive must be reviewed by the European Commission. The Commission can then decide to maintain, amend or withdraw the directive, and must give reasons for its decision.

Each national parliament has two votes. In the case of a bicameral parliamentary system, each of the two chambers has one vote.

It is clear that the proposal has divided opinion across member states. As of today, from contacts with other parliaments, it is expected there will be 11 votes across seven different member states against the proposal on subsidiarity grounds: Bulgaria, two votes; Malta, two votes; the Netherlands, one vote; Poland, one vote; Slovakia, two votes; Sweden, two votes; and the UK House of Commons, one vote.

If the Dáil agrees a reasoned opinion, it will increase the number to 12. To meet the one third threshold for the yellow card procedure, it would need 18 votes out of a total of 54 by the deadline tomorrow, and it now appears unlikely that the threshold will be reached. However, given the level of opposition raised, it will be incumbent on the Commission to respond clearly to the concerns raised by national parliaments before the legislation goes any further.

I will give brief details of some of the reasoned opinions to reflect the range of points being made by fellow parliamentarians throughout the member states. In the UK, the House of Commons found that the proposal has significant and possibly unwelcome implications. They are concerned about five matters: the basic justification for the proposal, its legal base and its actual legality, the detailed content of the proposal, its failure to meet the principle of subsidiarity, and concerns about its proportionality. The House of Commons finds that the detailed statement by the Commission "falls a long way short of the level of detail required to substantiate action at EU level", and that this constitutes a failure to discharge the obligations placed on the Commission by the treaty.

The Dutch House of Representatives found that the proposal breaches both the principles of subsidiarity and proportionality, and it also has some doubts over its legal basis. They find insufficient evidence that greater benefit would arise from EU action. They argue that the proposal will actually reduce GDP unevenly across the EU. They also find the potential shift of direct taxation from national to EU level as undesirable.

The Lisbon treaty only gave national parliaments the power to seek to ensure compliance with the principle of subsidiarity. While Protocol 2 of the treaty also refers to proportionality, the procedure for reasoned opinions is only laid down for subsidiarity concerns. However, it is clear in this case that some national parliaments have found the CCCTB proposal deficient on a number of grounds. They feel strongly enough about the weaknesses of the proposal to signal their other concerns at this early stage, including proportionality and legal basis.

It is unusual for a new legislative proposal to raise this level of concern across member states. New legislative proposals go through a detailed process of consultation and major concerns, in subsidiarity, proportionality and overall legality, tend to have been ironed out in advance of publication.

While the principle of subsidiarity may be clearly stated in the treaty, its application is complex. Subsidiarity is a legal concept but assessment depends essentially on policy and political judgment.

The Lisbon treaty recognises the democratic importance of national parliaments by entrusting them with the initial responsibility for ensuring the principle of subsidiarity is fully respected in all draft EU laws. We have a responsibility as legislators to make our best assessment of subsidiarity based on the evidence available to us. One of the most consistent themes of political debate recently is the need for national parliaments to be seen to be more relevant and responsive to the concerns of their citizens.

It is the considered view of the committee that the CCCTB proposal is deficient in its current form for the reasons given in our report. In summary, first, the Commission has not met the legal requirement to justify substantively what precise problem the proposal is seeking to address, how the proposal will impact on individual member states and why EU legislation for an optional CCCTB is clearly the most effective form of action. Second, the proposal will have a negative effect on the GDP of the EU and may well encroach on the area of direct taxation in how member states will be required to address that negative outcome. Third, it is now clear that a significant minority of member state parliaments have concerns about the proposal which go much further than merely its potential non-compliance with the principle of subsidiarity. Accordingly, I commend the committee's draft reasoned opinion that the CCCTB Directive does not comply with the principle of subsidiarity as set out in the Lisbon treaty.

Deputy Michael McGrath

I very much welcome the opportunity of making a contribution on the deliberations of the Standing Order 103 Select Committee on the proposed directive from the European Commission on the introduction of a common consolidated corporate tax base.

I strongly support the decision reached by the committee, namely that the proposal for a Council directive on a common consolidated corporate tax base does not comply with the principle of subsidiarity for the reasons set out by Deputy Charles Flanagan in his contribution and in the report which has been prepared by the committee.

I take this opportunity to thank Deputy Flanagan for his chairmanship of the committee. It had a tight timeframe within which to conclude its deliberations. It worked efficiently and made the deadline which, I believe, is tomorrow for submission of the final report.

In line with the resolution passed by this House, the committee had a narrow focus in that it was requested to examine whether the proposal complies with the principle of subsidiarity. Obviously, this Parliament and any Oireachtas committee established by it is a political forum as well and the committee certainly took the opportunity to examine the wider context of the CCCTB proposal while, of course, complying with the requirement to report on its compliance or lack of compliance with the principle of subsidiarity. I welcome that this particular initiative follows from a provision in the Lisbon treaty which greatly enhances the role of the national parliament, and gave this Parliament and every parliament throughout the 27 member states the opportunity to report back on the compliance of this proposal with the principle of subsidiarity. The clear advice available to the committee from the beginning of its deliberations was that this would be a political judgment rather than a legal judgment. It is fair to state the committee made a political judgment having considered all of the facts it deemed relevant.

It is important to state that during the second Lisbon treaty referendum in this country, the issue of sovereignty with regard to corporation tax was a key issue in the campaign. Clear commitments and assurances were given that direct taxation would remain in national competence, which it does in line with the EU and EC treaties. This proposal must be seen in the context of the political desire among some of the larger and more powerful member states in the European Union to secure tax harmonisation. While successive Governments have been very clear on the issue of Ireland's corporation tax rate, the issue of CCCTB presents an equally dangerous threat to Ireland's economic and industrial policy. I agree with what the Taoiseach stated previously, that effectively this proposal represents an attempt at tax harmonisation through the back door. This sums up very well what CCCTB is about.

As most Members of the House will agree, having an attractive corporation tax regime has been a cornerstone of this country's economic and industrial policy for many years. This regime is one which we must defend in all respects, not only the headline corporation tax rate itself but also the tax base. The European Commission's proposal on CCCTB is a direct attack on the independence of this and every other member state to have its own system of calculating the tax base. This is why we need to be very clear with regard to our position on the subsidiarity aspect, which has been dealt with in the report. When this enters the political realm, which it will when the working group gets into detailed analysis of the proposal and when it is dealt with at Council level, the political opposition from this country should be clear and unambiguous.

With regard to the committee deciding on the subsidiarity principle for this proposal, the guidance we received was to examine it in line with Article 5.3 of the Treaty on European Union. In effect, this is a comparative efficiency exercise involving a necessity test and a greater benefits test. The necessity test is whether the action by the EU is necessary to achieve the objective of the proposal and the greater benefits test is whether the objective would be better achieved at EU level and whether EU action would provide greater benefits than action at member state level. To assist parliaments in their evaluation of subsidiarity compliance, Article 5 of Protocol 2 to the treaty provides explicitly that any draft legislative Act should contain a detailed statement making it possible to appraise compliance with the principles of subsidiarity and proportionality. The committee found this proposal fails this test.

As has been stated inside and outside the House, this proposal is about the EU seeking to achieve its long-standing goal of tax harmonisation. It represents a direct threat to Ireland's successful policy in the area of foreign direct investment. All commentators agree that an export-led recovery will be at the heart of this country's effort to come out of economic recession and build sustainable economic growth. Anything that brings into question our corporation tax regime, or puts a cloud over or an element of uncertainty about Ireland's commitment to having an attractive corporation tax regime, will be damaging to our prospects of continuing to attract foreign direct investment.

While the proposal is for an optional common consolidated corporate tax base, in many respects having such an optional parallel system sitting side-by-side with the individual corporation tax regimes that exist at present in the 27 member states would complicate the administration of corporation tax throughout member states. Having examined this in the broadest possible sense, it seems that CCCTB is a lose-lose situation for Ireland and it is not a proposal we should countenance in any meaningful way.

As Deputy Charles Flanagan stated, the proposal for CCCTB goes back to 2001 when the Commission put it forward as a long-term comprehensive measure for providing companies with a common consolidated tax base for their EU-wide activities. CCCTB would involve new common rules for calculating company taxation throughout the EU and would replace the system of separate accounting with arm's length pricing methods for allocating group profits across borders with a sharing mechanism. The guidance given by the Department of Finance officials when they came before the committee was that such a new sharing mechanism is essentially a formula which proposes the individual taxable profit or base of each company in an international group would be aggregated or pooled to form a consolidated tax base. This consolidated tax base would be re-attributed to those same companies based on their presence in any member state, that presence being measured by the scale of assets, employees, payrolls and sales in any member state compared to the group as a whole

One would not need to be an economist to realise that re-attributing any multinational's profits across European member states based on that methodology would not favour Ireland, given that we have attracted most of the top multinationals in life sciences, IT, pharma and medical devices. Many of them have channelled much of their activity to Ireland. If we were to reapportion their profits across the European Union on the basis of the number of employees, payroll and, in particular, with regard to where they achieve their sales and turnover, then self-evidently this would not be a change that would bring any advantage to Ireland. Clearly, it would disadvantage us in terms of the corporate tax base we have.

While each country would continue under the CCCTB proposals to tax at the national corporate tax rate, the amount of taxable income would be arrived at under these common rules. While we might retain the appearance of having sovereignty by keeping the 12.5% rate, if the taxable income on which the 12.5% rate was applied was much reduced as a result of this proposal, of course the net impact would be that corporation tax income for the Exchequer would be greatly reduced. This is the context in which we must consider this proposal. The CCCTB would certainly remove any advantage Ireland has with regard to the 12.5% corporation tax rate it currently utilises.

The draft directive was published by the Commission on 16 March 2011. Its passage would require unanimity among the member states. This is the ultimate power we have as a country. I know in terms of how politics works in the European Union with regard to the spirit of co-operation and the way consensus is reached on individual issues that countries do not want to threaten to use the power of a veto, but if it comes to it and if the European Union is determined to persist with this proposal and bring it to the Council for a vote then Ireland should exercise its power of veto to block it.

An economic assessment of the proposed directive was carried out on behalf of the Department of Finance by Ernst & Young, one of the big four accountancy firms. It pointed out that the impact of the CCCTB proposal would be an overall reduction in employment and foreign direct investment in the EU under both a voluntary and mandatory CCCTB. There would be a reduction of economic activity in the EU and a change in the relative competitiveness of the EU compared to non-EU countries, as Europe would become less attractive for new foreign direct investment. It would also create significant winners and losers among member states through the redistribution of tax bases and among individual taxpayers, increasing uncertainty and instability for business.

There is no proof that the introduction of a CCCTB would assist the European Union as a whole to attract inward investment. The report referred to by Ernst & Young points out that it is likely having a CCCTB would be close to a zero sum game and that it would do little to increase the size of the overall economic pie within the European Union, with little change in terms of efficiency. It further states the debate has focused on the redistribution of the tax base among member states, the impact the new system would have on business decisions and the increase in investment or employment among member states. In addition to the report mentioned, a further report commissioned by the employers' group IBEC found that a CCCTB would result in higher compliance costs, higher effective tax rates, uncertainty about tax rates, damage to the European Union as an investment location and that the Commission's proposals were based on an old economy model and that optionality would be unlikely in practice.

According to the impact assessment accompanying the Commission's directive, the Commission has acknowledged that while the anticipated impact of the proposal is described as negligible at EU level, it would be large for some countries, especially Ireland. Simulations of the effect of the optional CCCTB carried out as part of the impact assessment by the Commission suggest that while EU GDP might fall by 0.17%, in Ireland it would range from a decline of 3.16% to 3.19%. When one considers these figures in the context of the very modest economic growth we hope to achieve in this country this year of 0.8%, clearly the impact of the proposal would be very serious.

I understand the proposal will now be considered by a Council working group which will be tasked with examining the proposed directive, article by article and line by line. I reiterate my party's position on the CCCTB proposal. We are absolutely opposed to it. We opposed it in government and oppose it in opposition. We urge the Government to use every tool at its disposal to express its opposition to this Commission proposal and will support it in that regard. The Taoiseach said recently that the Government had a very healthy scepticism towards the CCCTB proposal but that it would engage constructively on it at EU level. As Deputy Charles Flanagan pointed out, other member states' national parliaments have adopted an adverse or a negative position on the subsidiarity aspect. There is an opportunity for the Government to build alliances with these countries in its opposition to the proposal.

Deputy Pádraig Mac Lochlainn

As the Sinn Féin representative on the Standing Order 103 Select Committee, I am happy to commend the motion to the House. It was passed unanimously by the committee after much deliberation. It reflects a united determination not only among the members of the committee but I am sure the Members of this House also to defend one of the few instruments we have available to affect economic policy to create jobs and attract inward investment.

I am conscious that, opportunistically, some of our European partners, for want of a better description these days, have sought to use the proposal as a negotiating ploy in response to the ongoing attempts by Ireland to get a better deal and move away from the EU-IMF austerity programme which is devastating the economy and our people.

The scope for manoeuvre by the committee was limited and within the context of subsidiarity. One could apply it in purely technical and legalistic terms, but I note from looking at the responses of some of the other parliaments, in particular the Dutch and British Parliaments, that they clearly associate sovereignty with subsidiarity. It is very important for us to do so also, since so much of our economic sovereignty has been taken away. That was a key focus for us. It is important to state how the British Minister presented the issue in the debate in the British Parliament which issued a reasoned opinion similar to that of the Dutch Parliament. It is important for the public to understand its implications. It stated:

The draft Directive would:

provide for a single set of harmonised rules for calculating the tax base for taxable profits of companies resident in Member States;

allow companies to opt into the CCCTB or to continue to operate within national tax systems;

allow groups of companies to calculate their total EU-wide consolidated profit for tax purposes;

provide for that profit to be allocated to companies making up the group on the basis of an apportionment formula composed of sales, payroll, number of employees and assets in each Member State; and

provide that Member States would then tax the profit apportioned to companies in their Member State.

To simplify the matter, we could retain our corporation tax rate at the current level, but if this proposal was applied throughout the European Union, much of the profits made by companies based here would be redistributed to other member states. Reports carried out on behalf of the Department of Finance demonstrate that the economy and the people would clearly lose out as a result of this proposal.

The quantitative and qualitative aspects of the proposal were picked up on by the committee. The reports emanating from the European Commission to advance the proposal were poor in comparison to those the Department had prepared. They failed to adequately demonstrate the mutual benefits of the proposal across all member states. The committee in its deliberations and recommendation to the House strongly referred to this aspect, which was alarming.

It has been on the agenda of some member states to go after sovereignty, look for harmonisation and pull us into a one-size-fits-all policy. We see from what has been happening to the euro and the European economy how dangerous that could be. I refer to the comments and concerns of the Dutch Parliament in this regard. We have concluded our deliberations, but the Dutch and British were stronger in their reasoned opinions. They did not focus only on the issue of subsidiarity, they also spoke about proportionality — two headings under which we must assess European Union legislation. The Dutch state the proposal does not adequately indicate that action at EU level is preferable to the current situation where member states act individually; the proposal would not be beneficial to all stakeholders; the impact assessment clearly sets out many disadvantages for individual states which require comparison against the proposed benefits; the proposal might only have a very small positive impact on the general well-being of the European Union as a whole but would have a negative impact on the GDP and well-being of some countries, including the Netherlands; the proposal could cause budgetary losses at national level because of a smaller tax base; the proposal is badly timed in the current economic climate; and that in accepting that the impact on the revenue of individual member states would depend on their mix of taxation and policy choices, the Commission is indirectly interfering in the field of direct tax rates. Again, they are concerned about the sovereignty issue. The Dutch House of Representatives recommends caution for reasons of practicality and principle and refers to proposals that encroach on national sovereignty. I could quote from the reasoned opinion of the British Parliament at length, but it is broadly along the same lines. There is concern, therefore, and not only in small member states on the issue of sovereignty.

The position may have changed since it reported to us at the committee, but I was concerned about the Department of Finance's initial advice to us. It advised initially, on a preliminary basis, that the proposal complied with the principle of subsidiarity. I am mindful of the fact that in 2007 it stated the CCCTB proposal cut across national sovereignty and subsidiarity. That was the strong link it made to the sovereignty theme. However, it advised the committee on a preliminary basis of this. I am not satisfied the response given to us shows a change of opinion over such a short period of time and on such an important matter.

When campaigning against the Lisbon treaty, Sinn Féin and many others outlined that the Irish State and other member states retain the veto over corporation tax. The difficulty was that under qualified majority voting and other mechanisms, particularly enhanced co-operation, there is potential for enhanced co-operation even when a number of states have vetoes, reasoned opinions and the yellow card system at the European level. A number of European states can move on this, meaning there will be significant difficulties for Ireland if the member states happen to be France, Germany and Italy. Products manufactured here are exported for sale into those economies. We need to be vigilant.

There have been repeated German and French calls in recent times for a quid pro quo. They have repeatedly linked a reduction in the interest rate and CCCTB. Sinn Féin stated this is not the core issue in regard to the IMF-ECB-EU austerity programme. I refer to the cut in the interest rate, our corporation tax levels and the need for us to change. We are in difficult times and we must stand our ground. Collectively, we must concede nothing more. We are also mindful of the euro pact, which is the environment we are working in at the moment. I wish to cite the pact: “Developing a common corporate tax base could be a revenue neutral way forward to ensure consistency among national tax systems while respecting national tax strategies, and to contribute to fiscal sustainability and the competitiveness of European businesses.” We must be worried about this and the Government must be focused on it. The objective of those controlling most of our affairs is to move in this direction. There is no room for complacency. I am mindful of the limitations we are under because of the austerity programme. One of the key instruments for a government is control of currency and control of interest rates. In response to its crisis, the British Government was able to devalue the currency by one third. This was a major stimulus for exports to the British economy. It was able to consider interest rates and cool down or drive forward the economy. These are major instruments that have been taken away from Ireland at this point. The capacity to invest in our economy to stimulate it has also been taken away from us. The recent jobs initiative contains some well-meaning initiatives but it was tinkering around the edges. We need a substantial investment, utilising the resources of the National Pensions Reserve Fund and investing in infrastructure and job retention programmes. The latter is similar to what is in place in Germany, with businesses that have succeeded and can succeed again being subsidised. That makes sense from the perspective that every person who signs on costs the State €20,000. It makes more sense to subsidise viable employment. These imaginative initiatives need real resources and cannot be done because of the shackles of this austerity programme. Every eminent economist on the international scene, whether on the left or right, acknowledges and accepts the terms and conditions as applied to Ireland are unsustainable. We cannot deliver growth in our economy on this basis. Similarly, Greece cannot do it and Portugal will struggle. This project comes from the same people who wish to sustain the euro by punishing the people of the peripheral states for the collective crisis caused by the ECB and international financiers who failed in their regulatory responsibilities. These people got it dramatically wrong and they want to promote CCCTB. We must learn to be once bitten, twice shy.

The requirements to have control over corporation tax is a key instrument of Government. We have lost so many and conceded so many to our cost. We cannot concede another one. We must remain vigilant about the idea of enhanced co-operation and the ability of other states to undermine, by the back door, the will of the Irish, the Dutch, the British and the Polish people. We must be vigilant and focus on this point.

I am concerned about the preliminary advice of the Department of Finance. Maybe it has changed since it gave it to us but it is concerning, even if it was given on a preliminary basis. These are the very people who were accused by Morgan Kelly of doing a poor job of negotiating on our behalf with the ECB. These are the people who Morgan Kelly accused of suffering from Stockholm syndrome during negotiations, which will have major implications for people. We need to ensure that on this issue, they are defending this national interest. I was disappointed with the preliminary advice, even if it is limited to the tight, technical constraints of subsidiarity.

Fine Gael and Labour MEPs supported the Bersani report at European level but I am pleased to see that, in this Parliament, they have moved away from that position. They see the danger of what began at that level. We need to be vigilant and we need to monitor the situation. We have taken the first steps and I am sure the House will endorse the recommendation of the committee. This will send the collective message to European policymakers. I am sure other parliaments will do the same. Let there be no doubt that this is not the end of the process. There is a long journey to run.

Deputy Stephen Donnelly

I propose to share time with Deputies Shane Ross, Finian McGrath and Tom Fleming. I support the motion and commend it to the House. I thank Deputy Flanagan for chairing the committee and doing an excellent job in pushing us to come to this motion in a short space of time. The proposal for a CCCTB means our corporate tax regime is under threat on two fronts. Our corporate tax rate is under attack from France. We are all aware of this and we see reports in the media on the extraordinary position of the French. They insist that we increase our corporate tax rate in exchange for a reduction in the interest rate on money the Irish people are borrowing to bail out European financial institutions. It is extraordinary that the French want to profit from that as well as driving us into bankruptcy to bail out their financial institutions. It is extremely disappointing.

The corporate tax base is also under attack from the CCCTB and Brussels. The CCCTB purports to be a solution to a complex set of tax rules between European countries. From deliberation in the committee and from reading various files, it became clear to me that it is massively disproportionate to what is required and represents a Trojan horse for tax harmonisation, as described in this House. I hope and trust the Government will resist it. The reality of CCCTB would be that our tax base would shrink significantly. This would be worse than increasing our corporate tax rate. Many Deputies are opposed to increasing the corporate tax rate because it would scare off investment from domestic and international firms. Shrinking the CCCTB base would do the same thing, while reducing the Exchequer take from corporations. So this is more damaging than an increase in the corporation tax rate. As such, I oppose it strongly.

The CCCTB would also damage Europe. The EU's analysis shows that in eight of its 12 scenarios, the level of jobs in Europe and economic growth fell, and the EU's analysis shows that Ireland suffers far more than any other European country. We can see the reason for this. The CCCTB aims to change the principles of corporate tax in Europe rather than just clean up complex rules. It looks to tax corporate profits at the point of consumption. If the Germans sell a BMW to the French, the French Government will tax the profits on the car; the German Government does not get to claim any profits in an environment in which it invested public money. It is extremely distorting and would fundamentally undermine Europe's ability to trade.

I am concerned to hear from Deputy Charles Flanagan that the number of yellow cards required will not be met. I support the Government's decision to engage in this process and voted as such in the House. However, my support was on the basis that the engagement would be used to ensure that the CCCTB would never see the light of day or, at least, that we have no substantive part in it.

It is worth reflecting on the fact that at a conference in Washington DC a few weeks ago which I attended, French Minister Christine Lagarde stated in a fairly strenuous manner that there would be movement on the base. I reiterate that, thank Deputy Charles Flanagan and encourage the Government to resist this on an ongoing basis.

Deputy Mattie McGrath

There is a significant financial and symbolic significance associated with our corporation tax rate, which has drawn tens of billions of dollars of foreign direct investment, much of it from the United States. This is attracting high-skilled activity in the high-tech areas, pharmaceuticals, biomedical industries and others. In my own constituency in south Tipperary, we are nearly the leaders in the pharmaceutical sector; my colleagues and I visited Merck, Sharpe & Dohme last Friday and the new extension to its facility, which will provide 100 or more high-tech jobs. That company has brought in significant investment from abroad.

Highly skilled activity is being attracted and the raising of the corporation tax rate or implementation of the common consolidated corporation tax base, CCCTB, is out of the question. The corporation tax rate is protected under many EU treaties and I have been told we have a veto on the matter. The last referendum in Ireland was on the Lisbon treaty and the matter had to be put to the people twice. When I was knocking on doors many people were concerned about this veto so I hope the promised laws will come about.

One of the essential pillars of our economic policy, which is critical to achieving growth, is the corporation tax rate. It would be counter-productive not only for Ireland but for the eurozone and European Union to interfere with it. As an open peripheral economy we must compete with larger and more central economies on mainland Europe, so we must be able to offer incentives. We are honest about the incentives in this country, unlike the French. The French Government and its president have turned the issue into a political football, airing inaccurate views about Ireland's tax model and how it compares with other European states. Those living in glasshouses should not throw stones and the French should examine their own tax laws. Whereas the headline French corporation tax is 34%, the effective rate paid by businesses is far lower, and some corporations, such as major oil enterprise Total, manage to pay no French corporation tax at all. It is a disingenuous and unfair process, and our Government must fight it at all costs.

A PricewaterhouseCoopers study for the World Bank indicated that France undercuts Ireland on an overall corporate tax burden, a fact about which we should be constantly cognisant. There appears to be growing agreement in Europe that tax harmonisation will eliminate competition and centralise activity when the opposite is necessary. Economic activity must be allowed to flourish across the EU and particularly in peripheral states. People in such states are already being punished and they should not also feel the effects from a CCCTB. I strongly support the Government in its stance.

Deputy Shane Ross

I congratulate everybody who has spoken on the motion and the degree of unanimity is very welcome. We are tip-toeing around the issue because what is happening here is very obvious. It is a nakedly political issue and in considering the timing of what is going on, it is obvious that this is related to what is happening on corporate tax or our negotiations with the ECB, the EU and the IMF. It is related to everything happening in Europe. The Taoiseach was right and we should support him fully in his statement that the CCCTB was simply a means of changing the corporate tax rate via the back door. There is little doubt about that.

This issue has been rumbling along for eight or nine years and seems to be coming to a head now, at the exact time we are under pressure about the corporate tax rate. As Deputy Donnelly has outlined, this is a means of changing the rules in order to undermine the 12.5% rate. The Government is standing steadfast on that rate and if it cannot be changed, the only way around the matter is to change the rules and the basis of calculation. If the proposals from the Commission are implemented, the 12.5% tax rate would be fairly irrelevant, and we will be left high and dry with our 12.5% tax rate, with much less to tax because profits will move elsewhere. It is ingenious and clever but I suggest that the Government take exactly the same attitude to this as it has with the corporate tax rate; if necessary, as Deputy McGrath indicated, a veto can be used.

We can be involved in constructive dialogue but it will only be constructive in name and appearance rather than in the sense as intended by our European partners. I was one of those few people who voted against the Lisbon treaty the first time and in favour of it the second time. I voted against the treaty because of fears about a move against the 12.5% tax rate. At the time I was assured by no lesser people than the Government of the time and the French President when he visited here that there was no threat whatever to the corporation tax rate. He came to the French Embassy and reassured all and sundry that he had no intention in that respect. As a result, assurances were given for the second referendum and they are now ringing extraordinarily hollow.

It seems to be no coincidence that the nation that the proposed changes suit more than any other is France. This is undoubtedly a French-led initiative. I say that as a Francophile and somebody who goes on holidays to France virtually every summer. I say that because I see self-interest, ingenious timing and a great deal of damage to this nation. An Ernst & Young report related such findings.

I suggest that we make it absolutely clear to our European partners that any changes in the CCCTB should be treated in exactly the same way as any changes in the 12.5% tax rate because tax harmonisation is an issue on which we will exercise our right to veto, whether it is done via the back or front door.

Deputy Tom Fleming

This proposal is a strategy by the bigger powers in the EU such as Germany and France; they are playing games to get at our 12.5% corporate tax rate through the back door.

The 12.5% rate is vital for our existence in terms of competing on a level playing pitch, particularly in the context of the current economic crisis. We export more than 80% of everything we produce and have a huge export market in sectors such as consultancy and, ironically, financial services.

I welcome the recent declaration by the Taoiseach that he will oppose attempts to increase the corporation tax rate through the back door. It has been reported in other political circles that Ireland is prepared to engage in discussions but we cannot enter negotiations without knowing the implications for our 12.5% tax rate and the revenues that accrue from it. That door should not be left even half open. The details of these proposals have not been fleshed out and we cannot agree to anything that would be detrimental to our interests. As the Lisbon treaty gives each member state full control over its domestic tax rates, all 27 member states would have to agree before changes can be made and individual states can exercise a veto over proposals. We will have to be vigilant in this regard.

Given the success of the 12.5% tax rate, we should if anything reduce it to give the economy a badly needed stimulus. The Government should consider reducing it to 10% because we need to think outside the box and take positive measures that will help us resolve our crisis. No country could oppose such a reform in light of our current predicament.

Deputy Kieran O’Donnell

I commend Deputy Charlie Flanagan on the efficient manner in which he conducted the committee's business and on producing a comprehensive and relevant report. CCCTB has been discussed in very abstract terms but the proposal put forward by the European Commission breaches subsidiarity rules because there is insufficient information to make a proper evaluation of the proposals and, by the Commission's own admission, it veers into the area of Ireland's effective corporation tax rate. The Commission's explanatory memorandum on the directive states that its effect on the revenues of member states will ultimately depend on the policy choices they make with regard to the combination of taxes levied or the rates applied. In other words, if the Exchequer experiences a decrease in corporation tax revenue, the State would have to change its tax rates to compensate for the loss. Europe does not have competence over our corporation tax levels but this directive encroaches on this area.

In layman's terms, individual countries will set their tax rates according to certain criteria. A way will first have to be found to combine all the profits for companies over Europe and then each country will tax a proportion of this amount based on its share of sales, employee numbers and assets. As each of these factors are weighted at one third, the profits made by the large number of multinational corporations located in Ireland will be taxed in the country in which they make their sales. That means we lose as a country and our capacity to meet our EU-IMF requirements will be diminished. The multinational sector looks for certainty but this proposal provides uncertainty by calculating overall profits across the EU before dividing it into shares that can be taxed according to the rates applied by individual member states. Clearly it is not in the interest of Ireland or its large multinational base to face this degree of uncertainty.

Furthermore, the proposed directive is outdated. It was originally proposed in 2000 to deal with inequities between member states. In the subsequent 11 years, we have introduced transfer pricing regulation, double taxation agreements and various measures recommended by the European Court of Justice. As a small country, we will lose out to larger member states on sales, employee numbers and capital investment. The directive deals with a number of issues that have already been addressed more efficiently elsewhere. Even by the EU's own admission, it is questionable whether it will benefit the EU. The Commission states that employment will be reduced by 0.1% and that GDP and foreign direct investment will decrease. In its current incarnation, therefore, CCCTB is not good for Europe.

Our corporation tax rate of 12.5% is applied on trading profits. Rental and investment income is taxed at 25%. While France levies a corporation tax rate of approximately 33% it also provides a special SME rate of 15% for profits under €38,000. Companies resident in certain French territories, such as French Guiana, do not have to pay corporation tax for the first ten years of operation. Exemptions are also provided to ailing companies in certain designated areas. In the case of capital allowances for fixed assets, for every €100 spent on fixed assets in Ireland in year one there is a tax saving of €1.56. In France the corresponding tax saving is €6.60. Contrary to what may be the popular view put out by France, it probably has an effective lower corporate tax than Ireland. The French authorities should sit back and look carefully at what is being proposed under the CCCTB because the rates they are providing are not far off what are provided in this State.

Our 12.5% corporate tax rate is one of the cornerstones of our economic policy. It is what primarily attracts multinationals to the State. I was a practising accountant for many years and recall small companies struggling to pay corporate tax at 40% before it was reduced to12.5%. Those companies were then able to retain staff, recruit new staff and invest in their business. The CCCTB proposes a system of standard capital allowances for countries and a standard write-off of credits for research and development. These are two integral parts, along with our corporate tax rate, in terms of economic policy. The CCCTB will change how member states arrive at a base for taxation, based on the overall volume of revenue. On that basis we could retain our rate of 12.5% but the amount of profits we can tax will be reduced, the capital allowances we can use will change and research and development tax credits will be altered. In other words, under the CCCTB the effective corporate tax rate will change.

The European Commission acknowledged this when it stated that member states will have to make adjustments in their own mix of taxation based on what they lose under the CCCTB. There is a recognition that Ireland will lose out under the proposed scheme. The Commission does not have a competence in the area of direct corporate tax rates and no EU legislation should be proposed that indirectly impacts on national sovereignty. Our corporate tax rate is fundamental to our future in terms of our economic base. The current CCCTB document does not meet the subsidiarity requirement.

Deputy Timmy Dooley

I welcome the opportunity to contribute to this debate. In the last Parliament I was a member of the Oireachtas Committee on European Affairs as well as the Oireachtas Committee on European Scrutiny. It is probably the first time we have seen the provisions of the Lisbon treaty being used to deal with a very important issue. I thank the committee for conducting its business quickly in this instance.

The committee's remit was to consider whether the CCCTB proposal meets the requirement in regard to subsidiarity; it was not charged with examining the likely outcomes of the proposals. In that regard the committee was somewhat hamstrung in terms of what it could achieve. The committee has concluded that the proposal does not meet the subsidiarity requirement. It will be a matter for other parliaments to take their decisions on that and we will then see how the provisions of the Lisbon treaty are applied in practice. Only then will we be able to establish whether they are to the benefit of the State in terms of where we see this debate going.

I accept that the Government is committed to the retention of the 12.5% corporate tax rate, as alluded to by various members of the Cabinet and by the Taoiseach on many occasions both inside and outside the House. That is welcome and in line with successive Government policy. Of equal importance is the protection and retention of our tax base. Any measure or decision that would erode the base will have an impact on our capacity to generate the types of taxes that are required to assist us through this difficult period. I am not sure, however, that we will win the subsidiarity debate in the long run if it were to be dealt with on a broader European basis. I am somewhat confused as to why the Government is proposing to enter into dialogue with its counterparts at EU level as part of a greater debate on this issue.

We all accept that the Government is over a barrel in terms of commitments it has made, particularly the desire to reduce the interest bill on the bailout. While that is laudable, we must be careful of our negotiating stance. We on this side of the House have a responsibility not to goad the Government into taking a position that would ultimately be to the detriment of the country. The interest rate is one thing, but we should steer well clear of entering into any dialogue that might ultimately dilute our position. The point has been made by various Government speakers that it is important to involve ourselves in the debate and that dialogue is the appropriate way forward. However, for an issue of such vital national importance, we must at the outset raise the red flag. We must, from the very beginning, invoke our right to the use of the veto, making it clear we are not prepared to enter into dialogue nor to countenance any changes to the way in which taxes are apportioned or collected which might impact on our capacity to trade out of the difficult situation we are in.

I would prefer to see the Government park the issue and to suffer the minor consequences associated with not attaining the interest rate change immediately. The question of the interest rate will be dealt with in due course. We must not cede any type of authority in regard to moving the CCCTB debate along. All of the reports on the CCCTB proposal, including that carried out by Ernst & Young on behalf of the Department of Finance and published in January, clearly show there will be winners and losers under the model and that Ireland will be a significant loser. Given our current fiscal situation we must steer clear of anything that might undermine our position in any way.

The report by Ernst & Young highlights lessons from the experience of the United States with combined reporting and the apportionment by formula of various tax measures. The overriding theme is that the adoption of a consolidated tax base with a uniform apportionment is unlikely to be either uniform or stable over a period of time. It is the view of the authors of the report that the same will apply, and probably to an even greater extent, in Europe because of the different measures that will be adopted by member states. The EU undertakes to respect the tax sovereignty of member states and if corporate tax competition continues to increase in the way it has in the past, what might be set out as the goals or objectives of this proposal will fall by the wayside and probably lead to greater disparity and greater difficulties in the future.

We should also look to the findings of the IBEC report that a CCCTB would result in higher compliance costs, higher effective tax rates, uncertainty regarding tax rates and damage to the EU as an investment location. In addition, the Commission's proposals are based on the old economic model and optionality would be unlikely to happen in practice. Taking these findings into account, I am confused as to why the Government continues to indicate a willingness to participate in a discussion with EU partners on this matter. The Taoiseach recently described CCCTB in this House as harmonisation of corporate tax rates through the back door. However, the Government has signalled its willingness to enter serious discussion on the CCCTB. There is an element of speaking out of the both sides of the mouth on its part but I can understand why that is the case, particularly in the context of a desire to secure a quick decision on the reduction of the bailout interest rate. That issue has moved on considerably because of what has happened in Portugal and Greece and, more recently, because of what has happened to IMF personnel. Perhaps the demand is not as great to find a resolution to this matter. There is an opportunity for the Government to assert its position and, in particular, to assert the necessity to protect our corporate tax base by putting forward the potential for the use of the veto at the earliest stage, recognising that any changes require unanimity. Clearly, if Ireland is diametrically opposed, as it would appear to be based on what various speakers have said, to this proposal, there is no necessity to enter dialogue in the first place. That is why there is no point having constructive engagement because that would lend credibility to the Commission's argument in the first place.

Over the weekend, the Minister of State at the Department of Foreign Affairs, Deputy Creighton, said the position of the French had hardened. The previous speaker correctly pointed out that while France has a 33.3% corporate tax rate, its effective tax rate is significantly lower at 8.1% according to the World Bank and PricewaterhouseCoopers report on paying taxes in 2011. While, on the one hand, the French have adopted a strong approach to force Ireland to make a change, they have a different perspective on their own rate. Literature produced by the French equivalent of the IDA, the Invest in France Agency, boasts of France having a low corporate tax rate. It states France's corporate tax regime is just as competitive as countries such as Ireland and cites the World Bank report for that claim. The French system has a range of tax breaks and incentives, including credits for hiring older workers or setting up in a poorer region. The most important is the research credit of 30%, which, as the agency notes, is more attractive than Ireland's 25% tax credit and represents one of the most generous in the world.

We are hearing a great deal of noise from France, in particular, and there has been a push towards a CCCTB for some time. While the French are setting out that the proposal is necessary and Ireland is a rogue state in the minds of some because of the approach it has taken to reduce its corporate tax rate, they are well ahead of the game and they are clearly trying to benefit more. The report on the CCCTB demonstrates that France would be a big winner to a tune of an increase of 6% as a result of the formula contained in the proposal. I urge the Government parties to walk away from their suggestion to engage in constructive discussion and to be clear that the veto will be used from the outset and that there is no necessity whatsoever to countenance any move towards a CCCTB.

Deputy Denis Naughten

I wish to share time with Deputy Twomey.

I welcome the opportunity to contribute to the debate as one of the members of the committee that examined the CCCTB. The proposal has been around for the past ten years and one of its main objectives is to deal with double taxation and over-taxation of companies that operate in a number of member states. However, this has been addressed through double taxation agreements between member states and, therefore, the argument in this regard has evaporated.

The other argument made by the Commission is that the proposal would reduce the administrative burden relating to tax compliance. It states the overall net gain in GDP at Union level would be 0.02%. However, studies, including one carried out by IBEC, found that the initial cost of upgrading IT systems and retraining staff and management would have a significant impact on the overall profits of the companies that would potentially avail of changes in corporate tax rates. The proposal disproportionately discriminates against a number of member states and the greatest loser would be Ireland because our percentage take of the overall EU tax base would reduce by one sixth, which represents a significant amount in the current economic climate. This, in turn, would have a significant impact on investment and employment to a lesser degree. However, we would face a decline in GDP of up to 3.2%. This would have a significant impact on the economy in comparison to the negligible gains that could be made.

The reason it would have such an impact on Ireland does not relate to our corporate tax base but to the way the Commission has drafted its formula to balance tax rates across member states. It discriminates against economies that are built on the IT and services sectors and it is very much orientated to traditional economies that operate in large member states. The formula disproportionately discriminates against small member states because of the apportionment tax structure proposed, which does not take due account of services, financial assets and so on.

Two out of three workers are employed in the services sector in Ireland. The structure proposed by the Commission disproportionately discriminates against companies in this sector. That is a fundamental flaw in the proposal. It also disproportionately discriminates against member states with small domestic markets because the system is loaded in favour of sales within member states. The proposal, therefore, fails the subsidiarity test. It would not provide a clear benefit either to Ireland or to the Union. It is not necessary nor is it proportionate either in its treatment of member states or the Union as a whole. I commend the motion to the House.

Deputy Liam Twomey

I support the motion. The committee was set up to examine whether the draft EU directive complied with the subsidiarity principle and we decided that it did not and gave a reasoned opinion for that. The directive would result in increased costs for member states and, as drafted, it does not outline fully how much it would cost every member state over time if it were implemented. However, we will not secure the minimum number of votes required to block the directive. A total of 18 votes are required and it looks like that figure will not be reached. This means the directive will reach the next stage of discussion at both Commission and Council of Ministers level. Contrary to what Deputy Dooley said, it has been clear in all debates in this House that this country is willing to discuss the CCCTB. There is a need for this country to be able to make its case rather than just threaten to veto proposals. We will discuss every aspect of the draft proposal but we will be absolutely clear that we will protect our corporate tax rate at every level of the European institutions because it is vital to our financial well-being and always has been. Sometimes when I hear other Heads of State discussing this country's position on corporation tax it seems they are very much playing politics for a local audience and it has nothing to do with the European project.

It is important that Ministers and officials are sent to Europe with a clear indication of what they need to protect in this country's interests, namely, as all Members have said, the corporate tax rate of 12.5%, that we have defended time and time again throughout the crisis at European level. The issue has taken on an added dimension because we are seen to be almost in conflict with some of our major trading partners within the European Union. Concerns have been raised by the German Chancellor and the French President about this country's corporate tax rate. They have been very much part of the wider financial concerns that are being expressed at European level about what has happened in this country in recent years.

The Government will work extremely hard to bring stability back to the economy to help us get out of the financial mess in which we find ourselves. Many of the concerns that have been expressed in the course of the debate in recent months will fade into the background if we manage to succeed in turning around the economy, get a return to growth, and control spending and debt in the long term. That should be the No. 1 priority for every single individual in this House because that is what will protect our future.

Even if the directive on the common consolidated corporate tax base goes forward for discussion it could be another 15 years before it comes back to this House for serious discussion. That is assuming we do not veto the proposal. It takes years for such directives to go through the European institutions at the best of times so we should not be too concerned about the proposal. Neither should we make any wild statements on what other countries say or are telling this country to do during the financial crisis.

We are setting out to protect our corporate tax regime. We have given a reasoned opinion on why it does not comply with subsidiarity. The Government is big enough to go to Europe and negotiate on behalf of this country on any draft directives put forward. We should not issue the threat of a veto even before we see what Europe proposes to do with us.

Deputy Peadar Tóibín

It is often said in criticism of the EU that it is like an oil tanker trying to turn around in that it takes such a long time to make decisions. I have not heard anyone say previously that it is a benefit of the EU to take such a long time to make decisions.

Ba mhaith liom ar dtús fáilte a chur roimh an rún seo. This motion is to be welcomed, as is the committee's unanimity on the matter. The Government parties hold a view contrary to that of the Department of Finance, whose opinion is that the Commission's CCCTB proposal does comply with subsidiarity. That must be a point of concern for all Deputies.

However I wish to put the focus on subsidiarity and the politics and purpose of the Commission's plan to push ahead with a common consolidated corporate tax base for Europe. Let us not forget that in September of last year the EU's Tax Commissioner publicly stated that if member states did not sign up to CCCTB it would be prepared to force the issue using enhanced co-operation procedures — thus threatening to place Ireland outside the European core.

It is also worth remembering that prior to the Lisbon treaty referendums — during which corporate tax became a central issue — Fine Gael and Labour MEPs supported the infamous Bersani report in the European Parliament, one which called for common corporation taxes. Thankfully, both parties have seen the error of their ways and have come round to the Sinn Féin point of view on the issue.

The European Commission has been working on the introduction of CCCTB since the 1990s. Having already consolidated almost everything else to varying degrees — the economic, social, monetary and budgetary policies of member states — taxation is simply the next logical step for consolidation. The proposition set out by the Commission that it is merely seeking to create a formula for calculating corporate tax rates and the apportionment of such taxes and not the rate itself — is a fudge in itself. Either way, it means this country will lose its ability to set its own corporate taxes.

Let us be very clear. There is no treaty provision in matters of direct taxation. This is a matter solely for member state governments to decide. In real terms that means the CCCTB should not even be on the table for discussion. In fact, the Government's entertainment of the directive is to ignore the critical lessons at the heart of the European project currently and the financial crisis that is enveloping Europe. Issues pertaining to finance and taxation policy cannot be governed by a one-size-fits-all package. This country, like many of the periphery countries, is on a completely different economic cycle from the core eurozone members. Accordingly, the dictation of interest rates by core members when this country's economy was racing ahead, further accentuated the property bubble and the boom we went through in recent years. That interest rates are increasing at the behest of the core European countries at the time of one of this country's greatest recessions will make recovery far more difficult. In light of the current situation it does not make sense to even put the CCCTB on the table.

The Minister of State, Deputy Brian Hayes, has a different view. He was not a week in government before he told the House that we must "live up to our responsibilities and engage with our European partners on any tax proposals brought forward by the European Commission". Being a member of Fine Gael means one is sometimes burdened with trying to be the best European child in the class. It appears that the party wanted to show off its European credentials. The Minister of State, Deputy Brian Hayes, laboured the point by adding: "The CCCTB proposal has been brewing for some time and the publication of the directive will, if anything, finally enable a constructive and forthright debate to begin on the issue."

Perhaps Fine Gael could explain to the House why we need a "constructive and forthright debate"on a European directive that seeks to influence and control this State's ability to set its own taxes when there is no treaty provision — and therefore no requirement — on the State to do so? Perhaps the Government's position on CCCTB should be viewed in the context of its gradual acceptance of the IMF-EU programme. What started out as an uncompromising declaration of renegotiation quickly became, post-election, a meek acceptance of the EU-IMF diktat. Prior to the election the Labour Party boldly stated that "it did not accept that the EU-IMF deal provides a workable basis for restoring the Irish economy". The Labour Party told its voters the fiscal strategy set out in the EU-IMF deal involved excessive austerity that would put jobs and growth at risk. Fine Gael, perhaps to up the ante, told the people that it believed the EU-IMF bailout deal had not and would not restore investor confidence in this country and must, therefore, be renegotiated to reduce the interest rate and to ensure a fairer sharing of the cost of fixing Ireland's broken banks. Its manifesto was categorical in its condemnation of the programme, stating: "The current deal is bad for Ireland — and bad for Europe." Emboldened by the heady days of a post-election pact, Fine Gael and the Labour Party's programme for Government committed the parties to recognising that there was a growing danger of the State's debt burden becoming unsustainable and to ensuring that those measures to safeguard debt sustainability were urgently explored.

Over the past number of months, I and my colleagues in Sinn Féin have put the question to the Minister for Finance with regard to the exact point of unsustainability. Surely it is one of the most important issues facing the country. If there is a point of unsustainability, as alluded to by the Minister, Deputy Noonan, the Government should come clean and pinpoint where that is and inform the people how close we are to it. So far we have been refused an answer on this.

When the big day of negotiation arrived, the Labour Party and Fine Gael bottled it and on 28 April signed up to the very same deal with the EU and IMF that Fianna Fáil so badly negotiated late last year. Ministers will tell us that they re-jigged the deckchairs on the Titanic and that Ireland's banking system is now in a better place. In other words, their wheat is different from the Fianna Fáil chaff. Nobody, not even Deputies and Ministers on the Government benches, truly believes that.

Sinn Féin will closely follow the Government's constructive and forthright debate on CCCTB with our European partners. We will wait to see whether the Minister, Deputy Noonan, and the Minister of State, Deputy Hayes, can reconcile their view on the matter with that of their Department. We will see if Fine Gael will live up to its election manifesto commitment to oppose any attempt to dilute the unanimity required for tax harmonisation and if the Labour Party will live up to its promise to oppose any move towards a mandatory common consolidated tax base.

Deputy Joe Costello

I am delighted to have the opportunity to speak on the motion on the report of the Standing Order 103 Select Committee on the proposal for a Council directive on a common consolidated corporate tax base.

Deputy Tóibín is not quite correct in what he said about the Department of Finance. When we met the Department officials in the committee, they emphasised that it was their preliminary advice that this might not be in breach of subsidiarity. However, we do not know at this time what is their final position. The Deputy also mentioned the Labour Party, Fine Gael and Deputy Hayes engaging on the tax issue and the bailout. That is what we are doing. We always said we would engage on it and are in the process of doing that. We do not throw out the baby with the bath water. We are engaged with Europe and accept we are members of Europe. There is not much sense in being, as Sinn Féin is, in favour of the motion but not prepared to argue the case coherently and rationally. Rather, it attacks the parties on the other side. We need more cohesion and rationality in arguing the case on Ireland's behalf.

The principle of subsidiarity is the most fundamental principle governing the operation of the European Union. Article 5(3) of the Treaty of the European Union states: "The Union shall act only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States." Now, for the first time, under the Lisbon treaty national parliaments are being given the power to determine what constitutes the principle of subsidiarity. This is a legal power, but not a legal decision. It is a political decision, an Oireachtas decision and a decision of all the parliaments in the 27 member states. We decide, not the Commission or the Council. We make up our minds and if enough of us make up our minds that this infringes on the principle of subsidiarity, the matter must be rectified by the Commission and the Council. That is the power we have. For the first time ever, we are the watchdogs of policy-making in the European Union. We must engage and must be rational and reasonable. That is what we are doing.

What Deputy Flanagan has presented to us are the arguments put forward by the committee. These are the rational arguments for why we say this infringes the principle of subsidiarity. This is the first time ever this has been done. I regret we were not able to do it earlier, because of the election and the unfortunate situation where the Seanad has not been convened. In that case we would have had two votes, rather than the one we have currently, but, unfortunately, that is the situation. I have expressed my concerns that the eight-week period was too short for each parliament to make its determination in committee, go through the plenary process and then campaign with other member states. Unfortunately, that was the situation and we must make the most of it. Now, all legislative proposals emanating from the EU Commission must satisfy the principle of subsidiarity and be subject to that test.

The original purpose of the CCCTB proposals was to facilitate cross-border trade by having a centralised mechanism for tax assessment in the EU countries in which the traded goods are sold and a centralised formula for the allocation of that tax, based on sales, payroll, number of employees and assets of companies. Allocating taxes on this basis would be a significant change from the status quo. Theoretically, the proposal would redistribute the tax base between member states, while the member states themselves would continue to set their own corporate tax rates. However, if the impact of the proposal on member states altered their revenue stream, tax rate adjustments would have to be made, which could amount to an indirect interference in the control exercised by member states in the setting of their tax rates. This would be a clear breach of the principle of subsidiarity.

What is signally missing from the proposals is any evidence that the CCCTB will achieve the objective intended, namely, to facilitate cross-border trade between the member states. Big businesses and multinationals do not need assistance to conduct business in many countries. They are adept at doing so, as that is their nature. It is the small and medium businesses that require assistance in conducting cross-border trade efficiently and at a reasonable cost. However, it is difficult to see the value of a harmonised tax assessment mechanism, based on the tax returns from the country where the produce is sold, as having any benefit for the promotion of cross-border trade. It is unclear how this can be a solution. Indeed, it may well be counter productive. It may impede the countries of origin, where the business is based and where the goods are produced, from setting their own corporate tax levels as they consider appropriate to suit their particular business model. Small and medium enterprises need assistance in accessing a variety of markets in a number of countries, but they would be best served by a one-stop-shop offering financial and regulatory assistance and business direction, rather than any form of tax harmonisation.

Far more detailed information is required before all the implications of a cross-border proposal of this nature can be adequately assessed as to the benefits it might have and whether EU-wide action is necessary to achieve the objective of the proposal. Research proposals from Ernst & Young, mentioned earlier, have shown that Ireland would be among a group of six countries that would benefit least, while France and Germany would be among a group of larger countries that would benefit most. Interestingly, France and Germany are the main protagonists of the CCCTB.

There are serious questions to be asked with regard to this proposal in the context of subsidiarity. We require much more detail, a much wider argument, much more information on the benefits to be obtained and much more information as to whether what is supposed to be achieved would be achieved by the mechanism as proposed.

Minister of State at the Department of Finance (Deputy Brian Hayes)

I thank Deputy Charles Flanagan, the members of his committee and the Members of the House who have spoken on the issue today. In particular I thank Deputy Charles Flanagan for the report of his committee. As Deputy Costello made abundantly clear, this route whereby Standing Orders are used to allow a committee to raise an issue of significance under the provisions of the Lisbon treaty is a very important parliamentary procedure and highlights the importance of using the powers under the Lisbon treaty to have more parliamentary scrutiny and accountability in decision making across the Union. Parliament's voice absolutely needs to be heard not only from the perspective of the Executive, but more particularly from the perspective of the Commission and the Council so that it is clear if there is a red light on a particular issue, the voice of national parliaments is heard. That was something that was an inimical part of the Lisbon treaty in the debate that ensued, as colleagues will be aware.

Deputy Tóibín and to a lesser extent Deputy Dooley raised the question of engagement, which I would like to address on behalf of the Government. I understood from what Deputy Tóibín said that he is effectively arguing that the Government and the State should walk away from the current debate on the CCCTB proposal that has emanated from the Commission. He is suggesting doing something that his party did not do over a 14-year period in the Northern Ireland peace process. The two principles in that case were: first, nothing is agreed until everything is agreed, which in a funny way is the kind of rationale at the heart of the European project albeit a bigger project now because of enlargement; and second, one should stay at the table and persuade others of the position that one wants to take up. The Government would contend that it is not in our national interest simply to walk away or to use the phraseology of Deputy Dooley from Clare that we should use the red flag. That is not in our national interest primarily because were we to walk away——

Deputy Joe Costello

One never knows; it might be no harm to walk away.

Deputy Brian Hayes

—— nine or more countries could go it alone, which would immediately bring the proposal that step closer to implementation. In staying with these negotiations and being actively engaged we can make the case as to why we are so opposed to the introduction of the Commission's CCCTB proposal. It is in our national interest to remain engaged on this matter, not to run away from the debate and to continue to make the case from our own perspective and the perspective of many other countries where the implementation of this proposal would be entirely negative towards their economies. We are willing to engage with the Commission and other member states on the issue provided the principle of unanimity on taxation matters is fully respected. All indications would suggest that the publication of the draft directive is only the beginning of a very long process. After all, the question of harmonising company taxation in the European Union has been around for a number of decades and we can anticipate many more years of work before any final proposal will fall for consideration.

The House will be aware that the limits of the European Union competence as governed by the principle of subsidiarity are set out in Article 5 of the Treaty on European Union, which, inter alia, states: “the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.” National parliaments have a role in ensuring compliance with the principle of subsidiarity as laid out in Article 6 of the protocol on the application of the principles of subsidiarity and proportionality. In accordance with Article 5 of the same protocol, the European Commission, which has the right of initiation in legislative proposals, is required to justify all legislative proposals from the point of view of subsidiarity. In this respect the Commission argues in its proposal that a co-ordinated action at EU level is necessary to achieve the desired end and that the fundamental concept of the CCCTB can only be implemented by a common approach within the European Union.

In recognition of the terms of the article of Protocol 2, the preliminary view submitted by the Department of Finance to the committee suggested that it was arguable that the proposal does not infringe upon subsidiarity. However, my Department was very clear that this was only a preliminary view as Deputy Costello has rightly said and that the Department might wish to alter its view following a more detailed examination of the proposal and discussion at the Council working group. Considerations that would impact on that preliminary view would include the question of a compulsory system rather than an optional system and whether the consolidated element of the proposal would be dropped at some future date. A proposal without consolidation would have a much reduced impact on member states' tax revenues. Furthermore the requirement for a unanimous vote at the Council gives sceptical member states the possibility to discuss all of their concerns, including subsidiarity as discussed on the proposal development.

The Department of Finance preliminary view is the view of the Government, including the Minister for Finance, and my own view. The Minister's view was based on a very narrow interpretation of the principle of subsidiarity. The Minister for Finance made it clear that there would be plenty of scope to develop that view as discussions progressed. The committee decided to take a broader view of subsidiarity as a principle, which was perfectly within its right, just as the Dutch and British Parliaments did in that matter. It is, of course, a matter for the House to decide whether it wishes to send a reasoned opinion that would range wider than subsidiarity alone. In that respect I note the report and the opinion of the Standing Order 103 Select Committee. I congratulate committee members and thank them for the work they put into this report, which has been laid before the House.

I echo the remarks of the Minister, Deputy Noonan, at today's ECOFIN meeting on the question of trying to reduce the interest rate charged on the package of funds from the EU. A new approach seems to be developing within some member states — a minority view, I suspect — that in order for a concession to be given, a member state must give something away. I believe that will produce a kind of political gridlock within the Union and is not in the Union's long-term interest. It is certainly not the European way. In many respects it makes it more difficult for countries like Ireland, which are part and parcel of a programme of funds provided by the EU and IMF, to find a way out of the very difficult economic situation we face. I reiterate the view of the Minister who made it absolutely clear in Brussels today that a more workable solution needs to be found. We will not give way on our vital national interest. The vital national interest of the country remains that the 12.5% corporation tax rate should remain. At a time of economic crisis the last thing a country does is to bring uncertainty to bear. Any reduction in the corporation tax rate at this stage would be economic suicide for this country at a time when we need certainty about our corporation tax rate and certainty about the potential of investment to continue to come into the country as it has so ably in the past.

That is the view of the Government on the issue. We remain committed to the reduction in the interest rate on the EU portion of the funds to this country. We continue at a bilateral and multilateral level to work with that, but we will not concede on vital national interests that the Government will absolutely defend as I believe all Members and parties in this House equally defend.

Question put and agreed to.