In a recent report the European Commission revealed that all of the new EU entrants – with the exception of Estonia and Latvia – have corporate tax measures in place, which could disrupt the EU’s internal market.
Poland came in for particular criticism over a general lack of transparency, but tax breaks afforded by Malta to international companies also came under fire. In addition to these concerns, the EU identified nine tax measures which it deemed “harmful” in Cyprus, one in the Czech Republic, two in Hungary, three in Lithuania, five in Slovakia and one in Slovenia.
Although the European Commission clearly hopes that the acceding countries will roll back the tax breaks in question before they join the EU in May 2004, observers have suggested that a degree of bargaining power has been lost, making this outcome a little less likely. A Financial Times report confirmed this, suggesting that: “The EU has lost its chief source of leverage to ensure its new members speedily comply, since it reached a binding deal with the 10 new entrants last December.” It continued, “Present member states have established a voluntary code against unfair business taxation targeting “harmful” practices. But enforcement often depends on goodwill or state aid cases launched by the Commission”.
IRELAND WILL FIGHT TO KEEP NATIONAL TAX VETO
Ireland’s Minister for Finance, Charlie McCreevy, has reiterated Ireland’s strong opposition to proposals contained within the the draft EU Constitution, which would remove the national veto for EU member states in certain circumstances. If all member states were to agree that a proposal related to either administrative cooperation or to tackling tax fraud, under the terms of M. Giscard d’Estaing’s draft constitution they would lose the right to a national veto.
Mr. McCreevy expressed his opinion that the ability of a country to veto proposals “goes to the heart of a representative democracy” adding that “Our position would be quite clear. We will be against this.”
Observers have suggested that Ireland may use its veto to block what it sees as the thin end of the tax harmonisation wedge at the forthcoming intergovernmental conference on the proposed EU constitution, which has been scheduled for October. However, it will likely face fierce opposition from member states such as France and Germany, which advocate a degree of fiscal harmonisation, arguing that low tax policies such as that advocated by Ireland can distort investment within the EU.
OECD ADOPTS MORE COOPERATIVE TONE TOWARDS JERSEY
The OECD has changed its tone considerably since it placed Jersey on its blacklist of harmful tax havens back in 1998. The Paris-based organisation is now offering to assist the jurisdiction in its proposed tax reforms.
The EU Savings Directive has not helped Jersey in their efforts to promote global standards of tax cooperation and, by its decision to allow some countries to establish a withholding tax, it has also raised the level playing field issue. There are now only six offshore jurisdictions, which the OECD deems to be uncooperative: Andorra, Liechtenstein, Liberia, Monaco, the Marshall Islands and Nauru.
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