There has been much recent debate in Ireland regarding the country's competitive tax rate of 12% and its application in a European Union (EU) context. Is it too low? Will it survive European tax harmonisation?

This is not just a topical Irish debate. The concept of European tax harmonisation is also a hot topic in the UK and many Continental jurisdictions. European governments are constantly seeing the European Court of Justice (ECJ) dismantle discriminatory domestic tax rules and legislation. Recent major tax changes in the UK, Germany and other jurisdictions have made substantial changes to domestic tax systems in order to buttress them against potential challenge before the ECJ.

As most people know, Ireland has a very competitive corporation tax rate of 12.5% applicable to the trading income of companies located in Ireland. Questions have been raised as to whether this rate is too low in the context of an EU environment. Indeed, there is almost a feeling in some quarters that this low rate is something we should be ashamed of. How can we be 'good Europeans' if we have low tax rates?!

Well, that is not a refrain that will be emanating from this article. We have a low corporation tax rate and we should be proud of it. Let us tell the world about it and let us not be coy in doing so. Indeed, maybe the more pertinent question should be whether the rate should be lower?

We live in a competitive environment. Competition is healthy and should be welcomed – so also with tax competition. As every adviser and business person knows, tax is only one of many factors (albeit an important one) in deciding where to locate any business. Ireland is located, in geographic terms, on the fringe of Europe. We do not have a large domestic economy in comparison to some of the major European players, nor do we have the natural and mineral resources that others have. Consequently we suffer from some economic disadvantages. Why should we not be entitled to balance the equation a little by being a bit more competitive with our tax system?

The bigger European countries should have nothing to fear from this. Businesses are not suddenly going to move from Germany, France, the UK and other jurisdictions or be deterred from setting up in those jurisdictions simply because Ireland may have lower tax rates. Indeed, the UK is a perfect example. The UK is sufficiently secure in its position in being able to attract major financial services and other businesses, that it does not begrudge the right of smaller countries to apply lower tax rates. Ireland and the UK countries may be tough opponents on the rugby and soccer pitches, but on this issue we are at one.

The EU, as an economic bloc, has to compete with the US, Japan and, increasingly, China. To compete effectively with those economies, the EU needs to be more competitive in many areas, including tax rates. Tax competition throughout Europe will encourage governments to be more efficient in the application of tax revenues. More efficient use of tax resources should lead to lower taxes. It is a virtuous circle. Simplistic? Maybe. That does not mean it is wrong.

So let us be robust in defending our position on low corporation tax rates. Competition is healthy and let us welcome it and look forward to the accession of the new member states. They will provide further healthy competition in the tax and other arenas. We in Ireland cannot rest on our laurels. We must remain competitive and continue to strive to improve our tax system to encourage the location of financial services and other businesses here.

The Irish Government has consistently proved responsive to and accommodating of the tax structures required by international business, as only the government of a smaller country can be. I have every expectation that it will continue to do so. In that regard, the recent changes to Irish legislation, making it much easier for special purpose finance vehicles in the securitisation, repackaging, collateralised debt obligation and other arenas to locate in Ireland, are most welcome. As also are the changes contained in this year's Finance Act providing advantages for holding companies located in Ireland.

I mentioned that we should be robust in defending our position on low corporation tax rates. Make no mistake, we need to be. There are forces at work that are determined to harmonise and raise tax rates throughout the EU. This may not be done in an obvious or transparent manner. The word 'harmonisation' is unlikely even to be used. But there is a process in place. Jean-Claude Juncker, Prime Minister of Luxembourg, said in 2002, describing how the EU system works : "We decide on something, leave it lying around and wait and see what happens. If noone kicks up a fuss, because most people do not understand what has been decided, we continue step by step until there is no turning back," ( The Economist, 12 September, 2002).

Note what is happening in relation to the proposals for a single system of taxation throughout the EU for small and medium-sized enterprises. We await the proposals for the system of taxation for the single European company. Those countries and organisations who believe in tax competition and lower rates need to be ever vigilant and active in defending and putting forward their views.

Being proponents of healthy tax competition does not make us any the less 'good' Europeans. It makes us better Europeans. Let us be in favour of lower tax rates and let us be proud of it.

Conor Hurley is head of tax at Arthur Cox.