In May the previous Government announced plans to introduce a single 12.5 per cent rate of corporation tax for trading profits and a higher 25 per cent rate for non-trading profits on the basis that this would be phased in over the coming years to eventually replace the current regime.
As has been the practice with previous decisions in relation to the 10 per cent rate of corporation tax for manufacturing, the Commission was informed of the Government decision shortly after its announcement in May. Separate meetings have been held with Commissioner Van Miert, who is responsible for EU Competition and State Aid rules, and with Commissioner Monti, who is responsible for taxation. In the light of the discussions which have taken place to date with two commissioners, I am satisfied that a standard low rate of corporation tax for all sectors of the economy will not run into difficulty vis-a-vis EU State aid rules, nor should it be affected by the proposed EU code of conduct on business taxation which is currently under discussion.
Commissioner Van Miert has sought clarification on certain aspects of the phasing in of the new regime, including transitional arrangements, and this is the subject matter of the discussions. However, the particular rate of corporation tax is not an issue in these ongoing discussions.
As regards the code of conduct, this is due to be considered by the ECOFIN Council in December and the proposal is for a voluntary code of conduct which would fully respect the principle of subsidiarity in taxation matters and would not interfere with a member state's right to set its own general taxation levels. It is proposed that the code would address certain aspects of business taxation which may be harmful to the Community interest. The focus would be on special measures or schemes which provide a low effective tax rate relative to the general business tax rate in the country in question and which involve other special features of a potentially distortionary nature.