Battle-lines drawn for EU tax war

José Manuel Barroso’s new EU executive will side with new European countries in a bitter row over ‘tax dumping’.

Old and new EU are squaring up for a bitter battle over national corporate tax rates and funding aimed at Europe’s poorest regions.

Brussels has rejected new French calls – echoed by Germany and Belgium – for ‘tax dumping’ new EU member states to lose European structural funds targeted at economically deprived areas.

Incoming Brussels chief Barroso has signalled which side he is on – he has appointed a Pole as new EU regional aid chief and a Latvian as European commissioner for taxation.

Both Warsaw’s Danuta Hübner and Riga’s Ingrida Udre are set to be in the frontline of the fight and are unlikely to wave the white flag on either cash or taxes to France, Germany or anyone else.

Paris and Berlin fear that the EU ten new governments are using low corporation tax rates to lure business into Eastern and Central Europe.

Moves to set a minimum corporation tax threshold across the EU are strongly opposed by countries such as the UK and France is now shifting the emphasis to Europe’s regional aid.

Populist French finance minister Nicholas Sarkozy has pledged to make proposals to an informal gathering of EU ministers on Friday.

“We don't want to be in a situation where our jobs will be relocated in Europe because of tax dumping, while we would finance their infrastructure,” he said.

“One can't allow in Europe that some countries say 'we're sufficiently rich to lower our taxes' - to as low as zero in some cases - but at the same time ask the countries of old Europe to pay structural funds that we could use for our regions.”

“I will propose that new members whose tax rates are lower than the EU average are no longer eligible to receive structural funds.”

Sarkozy’s arguments are falling on deaf ears in the European Commission – with the EU executive clearly siding with new EU countries.

EU economic and monetary affairs chief Joaquin Almunia dismissed the French proposal.

“We are not going to make a distinction in the way we apply cohesion funds between Portugal and Lithuania, or between Spain and Malta. The application will be the same for all,” he said.

A European Commission spokesman also rejected the Frenchman’s economic logic linking low taxes to higher prosperity.

“This idea that you have to be rich in order to have lower rates on companies is slightly muddled thinking,” he said.

“Normally a country has low rates of tax on companies precisely because they are poor relative to their neighbours and therefore need to attract inward investment so as to boost their prosperity in the medium-term.”

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