EU Expansion Will Encourage Greater Tax Competition, Says Study

by Ulrika Lomas, Tax-News.com, Brussels

30 April 2004

A study by accounting firm KPMG has concluded that EU enlargement will likely increase tax competition within the single market and bring pressure to bear on the established members to decrease tax rates.

Of the 69 countries examined in the firm’s survey, Poland and Slovakia, who are due to accede to the EU on May 1, have made the largest cuts in corporate tax in the last year, with both nations reducing rates to 19% this year.

However, these two states are not alone in Eastern Europe where tax cuts are concerned. Hungary has also cut corporate tax to 15% whilst the Czech Republic has decreased its rate to 28% from 31%. Bulgaria is also planning to cut corporate tax to 15% from 19.5%.

“I don't think there's any accident their tax rates have gone down,” John Battersby, KPMG's head of strategic tax policy, told Bloomberg on the timing of the rate cuts. “Practically every country in the world is aware that businesses have the option to do business somewhere else,” he noted.

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