Germany Accuses Austria Of 'Fiscal Dumping'

by Ulrika Lomas, Tax-News.com, Brussels

12 April 2006

Germany has reopened the ongoing debate about European tax harmonisation by accusing neighbouring Austria of ‘fiscal dumping’ in order to poach investment from companies looking to lower their tax burden.

German Finance Minister Peer Steinbrück was reported as remarking at an informal meeting of EU finance minister that Austria has been “aggressive” in its attempts to encourage companies to locate there by recently cutting corporate tax to 25% from 34% - a move which has led to increasing numbers of companies crossing the border from Germany to Austria.

"In the case of Austria we are dealing not with a moderate position but a rather ambitious and aggressive attempt to get companies to come to Austria," Steinbruck told Austrian daily Der Standard.

Steinbruck’s comments are an indication that the grand coalition led by the conservative Chancellor Angela Merkel has not softened its stance in the European tax debate as one of the main protagonists arguing for a minimum corporate tax rate, while the new eastern European entrants to the EU continue to slash taxes to entice more investment into their economies.

For its part, Austria argues that it has been compelled to cut its corporate tax rate to counter competition on its eastern borders, particularly from Slovakia which has introduced a 19% flat tax. Indeed, Austrian Finance Minister Karl-Heinz Grasser told reporters that Steinbruck’s remarks prove the Austrian decision to lower corporate tax was the correct one.

"I think that it's really a compliment if Peer is saying so many German companies are interested in Austria as a business location and want to invest in Austria," he stated.

The German government is currently studying plans to relieve the corporate income tax burden on its companies which could see the effective tax rate fall below 30%, although this is not expected to happen until 2008 at the earliest. Meanwhile, Germany’s corporate tax burden remains one of the highest in the industrialised world at about 38%.

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