18th May 2022

Pressure for common tax base continues

Pressing for a common EU corporate tax base, France and Germany have hinted that countries with low tax rates should receive limited Brussels aid, piling on the pressure for countries like Estonia.

According to AFP, the finance ministers of France, Germany and Poland discussed the linkage during a meeting on Monday, and it appears that Poland has now given its tacit backing.

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Polish Finance Minister Andrzej Raczko told the Journalists that harmonization is necessary for business to run in Poland, Germany and France, adding, harmonisation "is an issue Poland also should be interested in".

This will add pressure on countries like Estonia, as it breaks the conception that the issue was Germany and France versus the new EU members.

And it was Estonia that came directly into the firing line of French finance minister Nicolas Sarkozy who pressed the link between assistance and tax rates.

"I am thinking of our Estonian friends who have put their tax rate at zero. How can you ask for lots of structural funds and have a fiscal policy at zero. Who can understand that?"

The 10 new EU member states generally have very low levels of corporate tax in order to make their economies more attractive for company investment.

Estonia has a zero percent rate for reinvested earnings while Latvia, Lithuania and Cyprus level tax at 15 percent and Poland at 19 percent.

France, Germany and Sweden - countries with corporate tax rates ranging from 35 to 40 percent - fear that companies will shift their investments away from their economies to the East, and so are keen to see minimal corporate tax levels in the EU.

The German and French ministers said that it was difficult to increase their spending to finance the less developed areas in the EU when both countries are trying to reduce their deficits that are currently breaching EU rules.

"How can we reduce our deficits in the morning and then in the afternoon increase our spending to finance structural funds", Mr Sarkozy asked.

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