EU "Rules" - OK?

By Carol Barrie on Oct 28, 08 11:10 AM in Tax

Much has been said in the recent press about the need for the UK to bring its tax system in line with EU Law.

The UK is under pressure to ensure that dividends from companies in other EU states attract the same advantageous tax treatment as dividends between UK companies. At the same time, much is also being made of the number of UK companies who are departing these shores for Ireland, to benefit from Ireland's 12.5% Corporation Tax rate.

This is interesting given that it is anticipated that the EU Commission will bring forward a proposal for a common corporate tax rate in the second half of 2008 during the French EU Presidency.

France of course supports the concept of a "common corporation tax" but they are aware that a number of member states have reservations about the proposals.

Is this surprising, given the substantial benefit that Ireland is currently enjoying?

While very few countries will willingly accept interference in their domestic taxation affairs, it is clear that the current Irish rate is putting severe pressure on other European countries to bring down their headline rates if they are to have any hope of competing with Ireland for international business!

Whilst not blaming Ireland at all for looking after their own domestic tax take; it seems slightly odd that the UK has to reduce its tax take on dividends from overseas countries so as not to inhibit free movement of businesses across the EU while Ireland can bring their domestic corporation tax rate right down to attract business from the rest of the EU.

Ireland has just announced a .5% increase in the standard rate of VAT to deal with a "severe fiscal shortfall". The VAT increases are also to be accompanied by other direct tax increases. Presumably if they are forced to put up their domestic rate of tax considerably, the potential exodus of multi-national companies could force further tax rises.

I shall be watching the developments with great interest!