Luxembourg Central Bank Chief Sees No Need For EU Tax Harmonisation

by Ulrika Lomas, Tax-News.com, Brussels

05 December 2005

Luxembourg's Central Bank Governor Yves Mersch, stated last week that tax harmonisation is not an essential component of European Monetary Union, and that member states should be allowed to retain control of their own fiscal policies in order to counteract local inflation.

"From a conceptual side, there is no compelling need to move rapidly to tax harmonization," Mersch told a business forum, according to Dow Jones Newswires.

Mersch went on to observe that there "is no connection" between European Monetary Union and tax harmonisation, and that the latter concept represents one step beyond the former one.

Having lost control of monetary policy, Merz noted that fiscal policy "is the only policy that is left to them (euro-zone countries) in order to counteract inflation,"

Mersch also disputed Franco-German fears of 'fiscal dumping' by the new member states in Eastern Europe, which have been sharply cutting company tax rates in order to attract foreign investment, arguing that businesses were more concerned with the overall stability of a country's fiscal system.

"What companies tend to follow might be the effective tax rate, but what is more important is the overall fiscal policy," Mersch said.

While the European Commission is not committed to a policy of equalising corporate tax rates across the EU, it is nevertheless working towards the harmonisation of the company tax base in an attempt to reduce red tape and compliance costs for businesses. Taxation Commissioner Laszlo Kovacs has proposed that this process will be completed by 2009.

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