The results of a study by accounting firm PricewaterhouseCoopers have revealed that all member states of the enlarged European Union have at least one tax law contrary to EU law, with the UK identified as the worst offending member state.
The research analysed domestic tax legislation in eight areas throughout the 25 members of the EU including: absence of cross-border relief; controlled foreign company regime; company migration exit charges; deferral only for domestic transfers; domestic versus foreign dividends tax treatment; imputation system; thin capitalisation; and transfer pricing.
According to the results, the UK, with eight areas arguably in breach of EU law, was the country with the most illegalities, followed by Denmark and France with seven possible breaches each.
At the other end of the scale with only one illegality each are Cyprus, Estonia, Lithuania, Malta and Slovakia.
A surprising finding was that all ten accession countries who joined the EU on 1 May 2004 – with the exception of Latvia and Slovenia – have no more than two breaches each.
Overall, the results of the study show that of the 200 potential tax illegalities 45% were found to be in breach of EU law and therefore illegal.
Peter Cussons, international corporate tax partner at PwC, observed: “Under EU law, one member state cannot discriminate against individuals or companies from another member state. However, our survey findings illustrate that all EU member states have at least one type of tax legislation in place which does discriminate.
Cussons notes that of the 87 cases relating to discriminatory direct tax legislation that have been heard by the European Court of Justice (ECJ) in the past decade, 85 have found in favour of the taxpayer, a trend he forecasts will continue unless governments sit up and take note.
“Equally, EU based businesses should consider taking appropriate action such as filing in accordance with the EC treaty. Burying one’s head in the sand is no longer a viable option,” he concluded.
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