In the past few weeks the government has done their utmost to assure a worried public that the Lisbon Treaty would not impinge on Irish corporation tax laws. Their efforts have been greatly hampered of course by the honesty of the French, who said that they planned to push for tax harmonisation without delay, and by the leaking of the now-infamous memo written by a senior Irish civil servant which revealed that the Irish government had asked the EU to hold back on unpopular issues (such as tax harmonisation) until the referendum on Lisbon was safely over.

All this has meant that the government has been most vociferous in insisting that our low corporation tax regime is not in danger. Minister for Social Affairs, Martin Cullen, rubbished the idea on RTÉ’s Questions and Answers telling us that “the Lisbon treaty will not affect our veto on taxation” because, he says, establishing a common taxation policy would have to be a unanimous decision.

Fianna Fáil is on the offensive in pushing this treaty. A quick look at their website reveals the EU Reform Treaty at the top of their priorities with a ream of articles telling us how good the treaty will be for Ireland and Europe. It’s that old tactic of emotional blackmail again, ‘don’t spoil the party for everyone else by voting no’, so to speak.

On the FF website we can read Dick Roche on, ‘A balanced treaty for a better Europe;’ while other senior party figures write on everything from neutrality policy to workers rights. But of all the issues arising in the debate on Lisbon, taxation is probably the one to cause the government most concern. The realisation that we are now losing competitiveness, and that that will lead to an economic slump, has caused people to re-evaluate their understanding of our economic success. Job losses in the first quarter of this year have focused this a little more in people’s minds and brought some sound economic analysis to the attention of the common man.

Firstly, the insistence that the EU was the cause of Irish economic growth over the last twenty years is simply untrue, and more and more economists are pointing this out. Most job creation in the last two decades (except for the short term boom in construction which is actually proving to be more a curse than a blessing as far as sustainable economic growth is concerned) came from inward investment which was attracted by our low corporate tax and a low cost base. We have now lost that low cost base which means our low tax rate is absolutely crucial in preventing a major withdrawal of inward investment.

This is the realisation that has hit people and it is the one that the government are afraid will turn people off the Lisbon Treaty. The question is; will the Lisbon treaty lead to a common corporate tax policy - a Common Consolidated Corporate Tax Base (CCCTB) as it is termed - across the EU? The Irish Government is adamant that it won’t but many within the Irish business community -who have consulted the experts on the matter - say it will. So who is telling the truth?

If Lisbon is passed, it really boils down to the European Court of Justice (ECJ). Lisbon makes EU law superior to national law, but only in areas where it is covered by treaties - these areas of law are called competencies. It is the job of the ECJ to ensure that each and every country in the EU implements the EU’s directives in their national statutes. In other words where the supreme authority was surrendered to the European Union, the ECJ has the right to overrule national constitutions or the supreme court of the individual states of the EU. The question that arises is; does the Lisbon treaty surrender competency over corporate tax legislation to the EU.
“No” says Martin Cullen, Dick Roche, and their governmental allies. But they are not answering the question fully.

On the one hand there is still the requirement for unanimity on taxation so that it will require the agreement of every minister on the EU Council to agree on a pan-EU taxation directive (you would have to ask though what safety net we have when our voice in the EU Council of Ministers is more than halved under Lisbon), but on the other hand there are other means of skinning this particular cat.

Lázló Kovács, the EU Commissioner for Tax, takes the line that it would be better to allow the ECJ to take a proactive role and bypass the consensus style negotiation of the Council. In October 2007, he said:
“I want to remind you of the growing number of decisions by the European Court of Justice in the field of company taxation and the effects these rulings have had on Member States tax systems.”

Since this wasn’t clearly spelt out anywhere before, the Lisbon Treaty puts it neatly. Declaration 17 concerning Primacy provides that: ‘The Conference recalls that, in accordance with well settled case law of the Court of Justice of the European Union, the Treaties and the law adopted by the Union on the basis of the Treaties have primacy over the law of Member States, under the conditions laid down by the said case law.’

There you have it. The treaty which the Irish government wants the Irish people to sanction will give supremacy to the EU Court over the Irish Constitution and over our national laws once a challenge has been successfully brought to the ECJ. The ECJ’s decisions are on a majority basis so it is quite likely that a decision on ‘distortion of competition’ (which Article 113 of the Lisbon Treaty confirms is under EU competency) will be made by the Court which would seriously disfavour Ireland. More on that later.

Giving further clarity to the authority of the ECJ is the wording of the [Irish] constitutional amendment on which we will vote on June 12th, which reads as follows:

‘The State may ratify the Treaty of Lisbon signed at Lisbon on the 13th day of December 2007, and may be a member of the European Union established by virtue of that Treaty. No provision of this [Irish] Constitution invalidates laws enacted, acts done or measures adopted by the State that are necessitated by membership of the European Union referred to, or prevents laws enacted, acts done or measures adopted by the said European Union or by institutions thereof, or by bodies competent under the treaties referred to in this section, from having the force of law in the State.’

Just in case you find that legal long-windedness confusing, the amendment says that; we are committed to full enrolment in the new European Union as set out in the Lisbon treaty which will abolish the EU as defined in the treaty of Maastricht, and the Irish Constitution may be superseded by laws enacted by the EU’s institutions.
So now that our Constitution has been taken care of, the important article in the Lisbon Treaty to watch is Article 113. This is the one, according to the government, that retains our tax veto.

However, the Lisbon Treaty proposes to insert a five-word amendment to the important Article 113 dealing with harmonising indirect taxes in the post-Lisbon Union. Article 113 then reads that such taxes must be harmonised if they constitute ‘a distortion of competition.’ This would open the way for the EU Court of Justice, which has the power to adjudicate on competition matters, to rule that Ireland’s 12.5% company tax rate is a distortion of competition since it gives Ireland a serious competitive advantage (which of course it does).

Now, since the government has been denying this is the case here’s the wording of said Article 113:


‘The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.

This is the article that Cullen wished to point people towards when he said we would not lose our veto on taxation. Sure enough it says ‘the council shall, acting unanimously…’ so it does appear that we would still have power over our taxation policy. What he omitted to draw anyone’s attention to was the amendment entailed in the last six words, ‘and to avoid distortion of competition.’

The important point to note here is that anyone - the EU Commission, another Member State, or a private company - can challenge the tax laws of Ireland in the ECJ with the justifiable claim that they distort competition. Germany with a 30% corporate tax may say that products produced in Ireland selling in Germany have an unfair advantage which creates an unequal field and distorts competition. They could, and quite certainly somebody will, demand action from the ECJ.

How the ECJ would subsequently ‘even’ the balance is uncertain but an order to the Irish government to fix their taxes; and failing the appropriate action by the Irish government, heavy fines based on the net value of the ‘’distortion in competitiveness’ seem the likely route.

So, indirectly the country where services or products are sold may collect on the profits of the company who produced them even if that company is stationed abroad. Imagine what that would do to an Irish company who export most of their products or services to England, France and Germany?

There is an anomaly in the article in that it offers assurance that corporate tax is a consensus issue but simultaneously offers a method to enforce a single rate across the EU, but you can be quite certain it is not there by accident. It’s a loophole - the sort of loophole that, if it were in a business contract, would cause the contract to be torn up by any businessman who didn’t want the matter to end up in court.

Just to recap on it. If a majority of the Court of Justice should decide against Ireland, which is not unlikely, the Irish Government would have to remedy that distortion. If it did not, the Court could impose continuous fines until the distortion is eliminated, or the Commission could propose remedial measures under the EU’s internal market rules which allow for qualified majority voting.

This is quite compatible with saying that company tax legislation or harmonising joint tax rates across the EU must be decided by the Member States acting unanimously. Bringing in the Court of Justice is a mechanism for getting around Ireland’s veto.

Danish MEP Jens-Peter Bonde, who by the way favours a single corporate tax rate across the EU because of the very reason that it distorts competitiveness, put the point clearly when he visited Ireland recently.

‘A joint rate will require unanimity, yes. But to outlaw the low rate in a Court verdict only requires a simple majority in the EU Court of Justice in Luxembourg. It is misleading not to tell the Irish the full truth about the Lisbon Treaty and taxation.’