EU Tax Harmonization to Hit Bulgaria - Ernst & Young

In March, Germany and France will seek agreement for a new "grand plan'' for Europe, including the CCCTB proposal. Photo by EPA/BGNES

Bulgaria is one of six European Union member states, whose businesses will be hardest hit by tax harmonization moves, according to Ernst & Young.

The other countries to be affected by an EU-set corporate tax rate are Portugal, Poland, Finland, Ireland and the Czech Republic, according to the research, conducted for Irish businesses.

A change to corporate tax rules could involve the EU setting a minimum corporate tax rate of more than the 10% charged by Bulgaria, and introduce a new harmonized tax system known as the Common Consolidated Corporate Tax Base (CCCTB).

In March, Germany and France will seek agreement for a new "grand plan'' for Europe, including the CCCTB proposal.

Under the system, corporae tax paid by a multi-national would be paid proportionally to a number of countries, depending on its level of business in each.

Based on interviews with multi-nationals, Ernst & Young's findings reveal the new system would actually increase compliance costs for companies by 13%, not lower them.

"The majority of businesses found that their corporate income tax burden would increase under a CCCTB," the report says.

"This was due to the additional costs of preparing and filing the tax return and the associated tax administration, outweighing the expected savings in costs due to reduced need for transfer pricing," it added.

"The greatest impact on internal hours was felt by the largest companies in the study. This was due to investments already made in optimizing the compliance process,'' it added.

"A side effect of the CCCTB was to bring more activities in house, hence reducing external spend but increasing internal costs,'' concluded the report.

Chris Sanger, head of tax policy at Ernst & Young, said: “The CCCTB would reduce the benefit of having a lower rate.”

Bulgaria has the lowest personal and corporate income tax in the EU at 10%, which was introduced at the beginning of 2008, replacing the previous system, which combined several different tax rates - between 20 and 24%, depending on income.

Bulgaria also has the lowest social security rates, which coupled with a 10% flat rate, makes it very attractive for physical entities, employers and potential investors.

Ireland currently has the lowest corporate tax in the eurozone and the third-lowest corporate tax rate in the European Union, after Bulgaria and Cyprus.

We need your support so Novinite.com can keep delivering news and information about Bulgaria! Thank you!