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EU to make fresh company tax push despite Irish resistance

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(BRUSSELS) - The European Commission will revive Wednesday a bid to set a common corporate tax base for Europe, an idea rejected by Ireland, already in battle mode to defend its attractively low rate.

In the works for the past 10 years, the plan would allow companies to use a single European Union tax regime to calculate taxable profits instead of having to deal with different national systems across the 27-nation EU.

Although an old idea, the proposal has taken a new dimension after sparks flew at a eurozone summit Friday, when Ireland clashed with European partners critising Dublin's business tax rate as unfairly low.

Ireland has resisted pressure to raise its corporate tax rate ever since it was forced to accept a 67.5-billion-euro bailout from the EU and IMF late last year to save the country from a banking disaster.

At his first EU summit since taking over earlier this month, new Irish Prime Minister Enda Kenny refused to raise the corporate tax in exchange for a cut in the interest rate Ireland pays for its rescue loans.

The freshly-minted Taoiseach even clashed with French President Nicolas Sarkozy, who has led calls for Ireland to increase its corporate tax.

Ireland's 12.5-percent corporate tax helped to fuel growth in what was once known as the Celtic Tiger and the new government says the low rate must be kept to help the country recover from the financial crisis.

By comparison, the average corporate tax rate in the 17-nation eurozone stands at 25.7 percent. It is 34.4 percent in France and 29.8 percent in Germany.

As he arrived for a two-day meeting of European finance ministers in Brussels on Monday, Irish Finance Minister Michael Noonan said the low tax rate was key to the country's recovery.

Kenny has taken "a very strong line (because) the sector of the Irish economy which is doing the best and which we hope will help us to get out of the difficulties we are in is the manufacturing industry," Noonan said.

"Obviously the tax regime which we apply in Ireland, that sector depends on it," Noonan said.

Paris and Berlin support the creation of a single company tax regime for the EU, but Ireland dismisses the idea as a first step towards harmonising tax rates across the bloc.

In a bid to ease Irish fears, European taxation commissioner Algirdas Semeta said the system proposed by the Commission had nothing to do with harmonising European tax rates.

The goal, he said, is to cut down on administrative costs and double taxations faced by companies operating in more than one EU country by allowing them to use one system to calculate taxable profits.

The commission also plans to make the Common Consolidated Corporate Tax Base (CCCTB) optional.

But Ireland will likely face fresh pressure on its tax rate at the next European Union summit on March 24-25.

EU leaders adopted a "Pact for the Euro" on Friday to strengthen competitiveness in Europe and defend the single currency from future debt debacles in the wake of last year's bailouts of Greece and Ireland.

In their conclusions, the leaders signalled their intent to develop a common corporate tax base, which "could be a revenue neutral way forward to ensure consistency among national tax systems while respecting national tax strategies, and to contribute to fiscal sustainability and the competitiveness of European businesses."

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