Brussels was the scene of Taoiseach Simon Harris’s first participation in an exercise of high-level EU kite-flying this week. Unlike at home, where his Government is the one flying the kites as Stephen analysed on Thursday, he was on the receiving end of prodding by larger member states intent on exerting more control over Ireland’s position as an investment gateway into Europe.

Readers of The Currency will be familiar with long-running European attempts to harmonise the corporation tax base across the bloc. While the global OECD-brokered agreement on the minimum 15 per cent tax rate on the profits of multinationals has closed the door on the ultra-low-rate schemes of the past, significant competition continues between countries on defining what exactly constitutes a taxable profit at the given rate.

Ireland’s generous incentives for intellectual property-based businesses remain perfectly aligned with US tax rules and explain the continued growth of American pharmaceutical and IT multinationals here. They’re less popular with other EU countries, where the corresponding tax is not paid.

Three years, ago, the European Commission replaced the defunct proposal for an EU common consolidated corporate tax base with the new “Business in Europe Framework for Income Taxation”. This so-called Befit proposal “will be a single corporate tax rulebook for the EU, based on the key features of a common tax base and the allocation of profits between Member States based on a formula”. Ireland is against it and it hasn’t made much progress since then.

Separately, the rise of China to the rank of economic superpower, Russia’s invasion of Ukraine and the successful Inflation Reduction Act incentives for industrial investment in the US have made traditional European powers realise that they were falling behind the rest of the world for critical technologies and too reliant on uncertain imports. 

Sinead and Peter have discussed various aspects of Europe’s dwindling innovation and investment potential. Now countries led by France want to re-shore the industrial base they have largely outsourced overseas in past decades.

Choreography

The choreography at the special European Council meeting of EU heads of government on Wednesday and Thursday allowed them to set out their stall on the two policies and the idea that a quid pro quo might connect them.

First, a report prepared by former Italian Prime Minister Enrico Letta on the future of the Single Market urged further integration to address “Europe’s declining competitiveness”. Predictably, though not in a prominent position, the document promoted corporate tax harmonisation. 

Without naming Ireland, Letta highlighted the “degree of dispersion across the Member States in terms of statutory corporate tax and overall gross fixed capital formation” and recommended: “Given the cross-border nature of aggressive tax planning, tax avoidance and tax evasion, the European Union must act to protect the level playing field between member states and for European taxpayers,” including through the enforcement of existing EU rules against market distortion via tax incentives.

The leaders’ summit then discussed the capital markets union aspect of further EU integration. The decade-old plan intends to make it easier for investors and companies to connect across the bloc. The European Commissioner for Financial Services, Financial Stability and Capital Markets Union tasked with moving this forward happens to be Ireland’s Mairead McGuinness. In an interview with me last year, she acknowledged impatience regarding this “work in progress”.

Returning from Brussels, Jonathan reported this week that Irish MEPs, too, found progress too slow in implementing measures that could ease the flow of European capital into Irish scale-up companies, rather than seeing them fly to the US to find investors.

Yet, when the 27 leaders met a few days later, Harris was in the camp hitting the brakes on proposed reforms, which counted around half of those in the room. The Letta report certainly gave him ammunition to look for a softer approach.

“I never believed this was a question of: Would you like a capital markets union? But if you want that, you have to have tax harmonisation. If you want that, you have to have central supervisory structures,” he told reporters. “I never bought into that. I still don’t and, indeed, many other member states didn’t.

“So I think today the European Council has made very significant progress in relation to capital markets union. We’ll return to it again in June, we have definitive agreed conclusions. But it was also very important to me and a number of other member states that our views were heard and that our views were taken on board. I’m satisfied that they are, both in relation to the corporate tax system and in relation to making sure that supervisory structures are, of course, robust, but also proportionate and logical.”

The unanimous conclusions from the meetings highlighted the work remaining to be done and made no mention of tax. Instead, the immediate bone of contention will be on the level of supervision and associated red tape to hand over from national regulators like the Central Bank of Ireland to EU-wide bodies including the Paris-based European Securities and Markets Authority.

“Misunderstanding”

French President Emmanuel Macron hand-on-heart swore that he had no intention of bringing more control to his capital city, and welcomed progress towards “single supervisory mechanisms, organisation and insolvency procedures for major actors in the savings market, and towards tax convergence to fund them”. He said this would allow more European savings to be invested in what he called “our priorities”, ie the reshoring of critical industries.

Then Macron returned to his trademark condescending tone and added: “Several countries’ priority, with a degree of ambiguity or maybe misunderstanding, was to oppose elements of tax harmonisation. This debate can be clarified, we’re not presently talking about harmonising corporation tax for all sectors. 

“One of the key points to do with the insolvency regime is the harmonisation or convergence of tax on the main actors and processes involved in capital markets. This is highly technical and relates to investment funds, arbitrage and other technical operations. This debate has allowed us to lift existing misunderstandings because, as you know, many countries regard the ability to maintain low taxes as an attractiveness factor. This is something to be addressed in the long term because it forms part of better convergence for our Europe.”

Harmonisation of the corporation tax base is off the table for now and Macron acknowledged it was “not the most urgent issue”. There, Ireland, if you thought the EU was coming for your corporate tax base, it was just a “misunderstanding”. 

The main reason for this is, of course, that the current German government is not interested, as Germany’s Minister of Finance Christian Lindner made clear during his recent visit to Dublin.

Until the next time.

*****

Elsewhere this week, an interim judgment shed light on a major dispute between the housing developer Glenveagh and two serial objectors who had opposed 16 of its developments across the country. A land deal in Co Meath is at the centre of the dispute as Tom reported.

Glanbia announced the $355 million (€416 million) acquisition of US-based ingredient manufacturer Flavor Producers on Monday. This is the largest M&A conducted by the food processing group since a similar-sized deal for Slimfast in 2018 contributed to causing a period of financial turbulence. Jonathan placed it in context.

Kate interviewed Noelle O’Connor, who created TanOrganic and other clean beauty brands. Her success has been hard-earned and rooted in decisions to make no compromises on quality and sourcing. Now she is going big in the US. 

Finally, we are still running our reader survey. Please take a few minutes to tell us what you think of The Currency and you’ll be in with a chance to win a two-night stay for two in the five-star Ballyfin Demesne.