Bulgaria Wary of EU Tax Harmonization Plans

Finance | March 2, 2011, Wednesday // 13:23|  views

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

Calls against EU-wide tax harmonization moves are gathering speed in Bulgaria ahead of a key meeting of European Union leaders on March 11 in Brussels.

Bulgaria is one of the European Union member states, whose businesses will be hardest hit by tax harmonization moves, according to analysts.

If Brussels pressures Bulgaria into raising its comparatively low corporate tax rate, the country will lose one of few - or may be its sole advantage - to the rich and developed European economies in the eyes of investors, local experts have warned.

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.

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).

The draft document, which will be discussed at the March meeting in Brussels is provisionally called a pact and suggests that members would each have a say in each others' major economic policies before they are brought in.

It also mentions a proposal for the introduction of the Common Consolidated Corporate Tax Base (CCCTB).

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

Some observers have suggested that this is a move towards harmonised corporation tax, but EU officials deny this.

That part of the document will be of interest to the incoming government in Dublin, as the Republic has faced pressure from other European countries to raise its comparatively low corporation tax rate.

The Republic of Ireland attracts a large share of EU foreign direct investment (FDI) due to its 12.5% flat rate of tax on profits.

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.

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Tags: Common Consolidated Corporate Tax Base, CCCTB, Bulgaria, ireland, Cyprus, Portugal, Poland, Finland, Czech Republic, personal, corporate, income, tax, Germany, France, European Union, social security, Brussels


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