Warm welcome for new EU tax proposals

Small and medium-sized businesses have welcomed new proposals on taxation unveiled by Brussels on Tuesday.

The new rules would allow firms operating in more than one EU country to calculate their taxes according to the rules of their home state.

They are intended to reduce the cost of pan-European trading for small companies.

Gerhard Huemer, director of economic and fiscal policy at European small business federation UEAPME, welcomed the proposals.

“With the costs of complying with cross-border taxation systems as high as they are, it is little wonder that only 3 per cent of small and medium-sized companies have operations in states other than their country of origin.”

“Cross-border compliance costs can be up to 2.5 per cent of turnover for small and medium-sized businesses, as opposed to just 0.02 per cent for larger corporations: no small firm can absorb that type of cost.”

The European Commission’s scheme would counteract the costs of complying with different taxation systems, Huemer said.

The commission’s proposal would be voluntary, and would run for five years from January 1 2007.

After that time, Brussels hopes to have introduced a common consolidated corporate tax base for the whole of the single market.

“I urge member states to take this opportunity to eliminate some of the tax complications that inhibit small and medium-sized businesses from participating in the internal market,”said tax commissioner László Kovács.

Conscious that taxation remains the prerogative of national governments, commission officials stressed that the rules would not exempt small businesses from taxation.

“They would simply mean that a small company’s tax base - its taxable profits - would be calculated in accordance with the rules of the home state.”

“Each participating member state would then tax at its own corporate tax rate its share of the profits determined according to its share of the total payroll and/or turnover.”

“And if member states wish to put a strict limit on the potential costs and risk for their tax administrations, they could restrict the application of the scheme to small companies with fewer than 50 employees.”

Medium-sized companies are defined as those with up to 250 employees.

Commission president José Manuel Barroso has made a priority of improving the business climate for small and medium-sized companies – which account for 95 per cent of all European firms – as part of the so-called Lisbon agenda to boost growth and jobs.

“It’s very important that we come with some concrete ideas to improve conditions for small businesses in Europe,” Barroso said on Monday.

“Small businesses are very important, as they are the ones creating jobs.” 

Barroso will announce a number of other measures designed to help improve the economic climate for small businesses at the European summit in March.

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