Peer Steinbrück, Germany's Finance Minister
Luxembourg vetoed attempts on Tuesday to end its position as a low-tax haven for web retailers, blocking VAT reforms that were proposed by the German presidency of the European Union and supported by all other member states.
Jean-Claude Juncker, Luxembourg's Prime Minister and Finance Minister who is known as Mr. Euro because of his longtime chairmanship of the Eurogroup of Eurozone Finance Ministers, refused to give up a tax regime that has attracted companies including Skype, AOL, Apple and Ebay to the Grand Duchy, providing his government up to €300m ($406m, £204m) a year in revenues.
Luxembourg's 15 per cent VAT rate is the lowest in the EU
"I can't agree here today," Juncker said despite criticism from other EU member states, which are losing jobs and tax revenues because of the shift offshore of the booming e-commerce sector.
Peer Steinbrück, Germany's Finance Minister, secured agreement on other aspects of a package of VAT reforms and believes Juncker will lift his veto by the end of the year.
At Tuesday's meeting Peer Steinbrück accused Ireland of subsidising its public services with EU funding while engaging in unfair tax competition.
In a strong public attack on Irish corporate tax policy, Steinbrück said States such as Ireland risked jeopardising the EU idea if they continued in this manner. "It is unfair to reduce tax rates and get money from the EU to finance public spending.
"Ireland is offering tax rates [ that are] very advantageous and organising this tax competition," Steinbrück said at the meeting of EU finance ministers. "Some countries are concerned about using certain techniques to fund their public finance requirement in the hope that if they do not have sufficient income it will be compensated by EU funds," he said
The German criticism followed a discussion on a proposal to harmonise the EU corporate tax base ( as distinct from tax rates).
The Irish Government fears that harmonising the base will inevitably lead to a harmonisation of the corporate tax rate.
Jamie Smyth of the Irish Times says that Steinbrück cited the tax reliefs available in the "Dublin Docklands" - commonly known as the International Financial Services Centre - as an example of using low tax rates to attract industry and engage in tax dumping. He also cited tax relief schemes in the Netherlands as examples of unfair tax competition that were undermining co-operation in the EU.
"There is a clear interest in Europe in certain countries to make their tax attractive to influence where they [ multinationals] locate and it is not a diplomatic disgrace to say it," added Steinbrück, who also said that young people in Germany were asking him to ask these questions of other EU states.
Steinbrück also said Ireland had nothing to fear from the corporate tax base harmonisation proposal.
Ireland's corporation tax rate is 12.5%. Rates are above 20% in most EU countries.
Irish business employers' group IBEC strongly criticised Steinbrück's comments, calling them "disgraceful, and unbecoming of a president in office of the Ecofin council".
This could surely be termed synthetic indignation.
We have been very lucky that the funding members of the European Union, principally Germany gave us about €36 billion in aid with few strings attached.
We were simply lucky that they were stupid.
The IBEC gun-for-hire would surely be as indignant if the boot was on the other foot!
Company Taxation/Common Consolidated Corporate Tax Base: European Commission presents progress report before finalising its proposal due in 2008