EC Finds 'Harmful' Tax Practices In New EU Entrants

by Ulrika Lomas, for LawAndTax-News.com, Brussels

23 July 2003

In a report released last month, the European Commission revealed that all of the forthcoming members of the European Union - with the exception of Estonia and Latvia - have corporate tax measures in place which could disrupt the EU's internal market.

Poland came in for particular criticism over a general lack of transparency, but tax breaks afforded by Malta to international firms also came under fire.

In addition to the aforementioned concerns, the EC identified nine tax measures which it deemed 'harmful' in Cyprus, one in the Czech Republic, two in Hungary, three in Lithuania, five in Slovakia, and one in Slovenia.

Although the European Commission clearly hopes that the acceding countries will roll back the tax breaks in question before they join the EU in May 2004, observers have suggested that a degree of bargaining power has been lost, making this outcome a little less likely.

Reporting on Monday, the Financial Times confirmed this, suggesting that:

'The EU has lost its chief source of leverage to ensure its new members speedily comply, since it reached a binding deal with the 10 new entrants last December.' It continued:

'Present member states have established a voluntary code against unfair business taxation targeting 'harmful' practices. But enforcement often depends on goodwill or state aid cases launched by the Commission.'

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