Ireland has the second-lowest corporation tax rate in the EU at 12.5%, which is credited for creating the celtic tiger, attracting massive foreign investment and jobs. Germany has the highest at 38.6%. In 2004 over €33 billion flooded into the country, almost the same as went to Germany.
German minister Peer Steinbruck warned that Ireland and other low tax countries in Eastern Europe were involved in what he called cutthroat competition that was not sustainable in the long run.
“Corporate tax laws such as those in Ireland are being exploited by German companies that set up subsidiaries there, borrow money from them and then write off the interest against their profits in Germany,” he complained.
The German government is adopting a two pronged attack — first in pushing the European Commission to develop an EU-wide harmonised tax base and secondly by reopening the EU’s Code of Conduct on unfair tax competition.
Mr Steinbruck’s deputy, Axel Nawrath, said they would push the finance ministers of the other member states for a new code of conduct once the German presidency ended at the end of June.
“This is something that must be addressed by the group dealing with the code of conduct. Germany is very adamant about this,” he said.
Politicians from all parties, Internal Markets Commissioner Charlie McCreevy and business interests have all warned that the plan to harmonise the corporate tax base must be killed.
Big hat tip to Daniel J. Mitchell at Cato@Liberty who comments:
The bad news is that Germany is attacking Ireland. The good news is that the Germans now attack with words and bureaucratic schemes rather than Panzers and Stukas. But the attack - based on German complaints that Ireland’s low tax rates are “unfair” - is nonetheless despicable. Instead of attacking Ireland, the Germans should learn from the Irish Miracle and cut tax rates and reduce the burden of government.