At the last EU summit on 4 February, Germany and France presented a working document, called the 'Competitiveness Pact', inviting eurozone countries to agree minimum harmonisation in taxation and social policies.
The pact was presented as a way of closing the structural economic gaps that Paris and Berlin believe has made the eurozone sovereign debt crisis worse.
It also came as a warning that Europe's largest paymaster, Germany, expected a political return on the bailout plans it had reluctantly agreed for Greece and Ireland.
Germany, France and Britain have long viewed low Irish taxes as a form of unfair competition and the finance ministers of Austria and France said Ireland's 12.5% corporation tax may have to be raised as part of any EU/IMF bailout deal.
Their campaign ultimately failed, as the Irish government insisted the country's national sovereignty was at stake.
Diverging views
The European Commission, which has long sought to harmonise corporate taxation regimes across the Union, is now hoping to ride on the Franco-German pact idea to revive its own plans, first initiated ten years ago (see 'Background').
However, it appears Brussels, Paris and Berlin have different views on the objectives.
In France, President Nicolas Sarkozy sees the eurozone crisis as an opportunity to stamp out what he sees as tax dumping within the euro zone. On a visit to an Airbus factory in January, he said it was unreasonable for Ireland to seek financial aid from the European Union while also maintaining its low corporate tax rates.
"I deeply respect the independence of our Irish friends and we have done everything to help them," Sarkozy said. "But they cannot continue to ask us to come and help them while keeping a tax on company profits that is half [what other countries have]," he added.
In Brussels, however, the focus seems to be rather on making Europe a more attractive place for investors as a whole. "Our focus is to reduce the compliance cost for business and making it easier for companies to exploit economies of scale," said a senior EU official, who was speaking to journalists on condition of anonymity.
"Currently, companies have to deal with 27 different rulebooks for calculating their taxable profits, resulting in high compliance costs, administrative burdens and complex re-adjustments," explained Emer Traynor, spokesperson for EU Taxation and Customs Commissioner Algirdas Šemeta.
"Common EU rules for establishing the taxable base of companies would eliminate large costs and complexities for European enterprises and make the EU a more attractive market for foreign investors," she told EurActiv.
For the Commission, tackling tax dumping seems more like an afterthought. "Of course, the CCCTB also reduces the possibility of tax planning or profit-shifting," the official said. "When you have intangibles, you can easily shift them to a low-tax country. With the CCCTB, this is no longer possible."
"But the main purpose is to improve the functioning of the internal market," he stressed.
No harmonisation
Of course, the Commission is also conscious that any move to harmonise taxation is likely to run into opposition. Britain, for instance, does not want to participate in the regime, which would remain optional.
"We are not preparing a fully-fledged harmonisation programme," the EU official said. Taxation "is very much a national competence," he reminded, "a politically sensitive field" and "an emotional issue for Ireland".
"I have to underline that it is not about corporate tax rates at all – we have no plans for any proposal to harmonise rates, as this is an issue of national sovereignty," added Emer Traynor, spokesperson for EU Taxation and Customs Commissioner Algirdas Šemeta.
Traynor also points out that the system would be only optional - "only businesses that wanted to sign up to the CCCTB would have to," she said. But she says the system has "very strong backing from industry," with 80% saying they backed the idea.
The commissioner "intends to bring forward a proposal in the first half of 2011," Traynor added.
