[update: while the main post was about tax harmonisation, the comments section has developed into a discussion on the Lisbon Treaty]
What does the Lisbon Treaty say about tax harmonisation? The answer of course is - Nothing. Lisbon will not mean tax harmonisation. (But that won't stop the Euroskeptics from shamefully telling us the lie that Lisbon will mean instant tax levelling and disaster for the Irish economy).
Nevertheless, the issue of tax harmonisation is here to stay. It is here to stay because the huge variation corporate tax rates across the EU is resulting in a massive disparity in Foreign Direct Investment (FDI).
According to the OECD the cumulative FDI Inflows into Europe for the period 1994-2004 look like this:
Ireland getting more than Italy in absolute terms! Unreal. On a per capita level Ireland is getting 5,8 times more FDI than France, 7.5 times more than Germany, and 20 times more than Italy.
A further start figure: according the to US department of State the total US capital stock in Ireland as of 2006 stood at $84billion which is more than double the US investment in India and China put together ($31 Billion).
These stark figures explain a large part of the Celtic Tiger. But they also expose its vulnerability. It is no secret that more and more capital is being diverted to Asia or countries in Eastern Europe such as Estonia which imposes a zero rate of corporate tax on some categories of company.
The figures also explain why some of the bigger European countries are crying foul. The European project was supposed to entail levelling the economic playing field by ironing out distortions in the market across countries. The single market, remember? But Ireland is not the only country seen as an offender. In 2006 Germany accused Austria of fiscal dumping in order to poach companies from Germany. Austria responded that they had to reduce their rates to cope with competition from their neighbours on their Eastern borders.
And so, Germany put the tax debate back on the table.
There is no doubt that it's going to stay on the agenda - although the Germans and French leaders may remain fairly mute about it until after the Irish referendum.
In any case, the referendum will make no difference - Europe, and therefore Ireland, is going to have to face this issue sooner or later. It is true that even under Lisbon each member will retain a veto over taxation, but in practice when the big EU powers apply pressure something has to give. It is unlikely that tax rates will be harmonised, but the way in which tax amounts are calculated could be harmonised to take into account the size of the local market for each firm, or the size of the workforce. This could mean an end to the famous transfer pricing, whereby companies located in a low tax country such as Ireland, simply push their funds around internally to be taxed in the low tax location and not their high tax location. In effect, it would be the same thing - Ireland's tax haven status would disappear.
There are two things to note about this. First, the argument made by the big continental powers is probably right: in terms of how tax is calculated it is ridiculous to pay most of your Eu tax in Ireland simply because you employ 200 people in Sandyford. (Ridiculous if you're German, not if you're one of the employees in Sandyford!)
Second, if the UK backs us we have a fair chance of postponing the inevitable. In the end, the UK will be powerful enough to protect her interests by only agreeing to watered down proposals which will probably be phased in over a long period. It just might be enough to give us enough breathing space to do what we need to do anyway: start unloading some of those eggs into another basket.