EU Funding Is Subsidising Corporate Tax Cuts In Europe, Says Schroeder

by Ulrika Lomas, Tax-News.com, Brussels

31 March 2004

German Chancellor Gerhard Schroeder has criticised the way in which many EU accession countries have cut rates of corporate tax whilst using funding from Brussels to pay for vital infrastructure reforms.

In a speech delivered at an European academic conference on Monday, Schroeder suggested that a “critical discussion” was needed with the leaders of the new EU states on the issue of tax.

Whilst the average corporate tax rate was below 20% in Eastern Europe against an EU 15 average of 30%, Schroeder warned that the current member states face an "intensified competition situation."

The Chancellor noted that at present, the accession states are permitted to “pursue a tax policy which isn't suitable for financing infrastructure upgrading in its own right but which relies on transfers from Brussels to finance their infrastructure upgrading."

“This creates a competitive situation which is problematic for the current members of the European Union," he argued.

The issue is a particularly pertinent one for Germany, given its proximity to states that have recently been aggressively reducing corporate tax, such as Poland where rates are 19%, and Hungary which is looking to reduce rates to 16%.

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