France Proposes Cuts In EU Aid To Low-Tax Member States

by Ulrika Lomas, Tax-News.com, Brussels

07 September 2004

French Finance Minister Nicolas Sarkozy has suggested that EU structural funds should be cut to member states with low rates of corporate tax in an attempt to counteract so called ‘fiscal dumping.’ ('Fiscal dumping' is a term used by politicians when they really mean 'competition' but can't bring themselves to mouth the c-word.)

In comments made to the French media at the weekend, Sarkozy argued that it was unfair to expect the larger, established member states, which provide the lion’s share of contributions to the structural fund, to effectively subsidise tax cuts in Eastern Europe.

"One can't allow that some European countries say we are rich enough to cut our taxes - to as low as zero in some instances - but simultaneously ask countries of the old Europe to pay structural funds we could use for our regions," Sarkozy remarked.

“We don't want to be in a situation where our jobs will be relocated in Europe because of tax dumping, while we would finance their infrastructure,” he added.

According to reports, Sarkozy would like to see development aid to the new member states cut back as long as their company tax rates remain “significantly” below the Western European average of between 30% and 40%.

However, the French minister’s proposals have been shot down by the EU’s governing body, the European Commission, which sees the linking of taxation and the structural fund budget as a complex and politically sensitive issue.

“Tax policy is largely discretionary for the member states,” observed Gilles Gantelet, the commission's regional aid spokesman. “Creating a link here with the structural funds is a fairly tricky issue.”

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