France and Germany push for EU harmonised corporate tax

Will the ten new Member States be allowed to follow in the footsteps of the Irish 'Celtic tiger'? That is the question raised by a new Franco-German effort to work towards the introduction of an EU minimum level of corporate taxation.

This was one of the main issues that topped the agenda of a high level meeting between the two countries in Paris on May 13. The move is set to counter competition, so-called 'fiscal dumping', which arises from low levels of corporate taxation in the new Member States. French Finance Minister Nicolas Sarkozy and his German counterpart Hans Eichel said they would soon ask the European Commission to draft an EU law to harmonise corporate taxes.

An extreme case is a country like Estonia that has a company tax set at zero per cent compared to the German average of 38.3 per cent. That was never the case for Ireland. However, a lower than average level of company tax did help the Irish economy to pull out of the bottom position it occupied when it joined the EU in 1973. This has made Ireland an example for the newcomers.

The Franco-German move comes at time when a new OECD study urges the four largest of the new Member States, Poland, Hungary, Czech Republic and Slovakia, to cut labour taxes and other taxes to attract foreign direct investment in order to catch up with the EU-15.

While the business taxation levels may be significantly lower, taxes on labour and social security charges in the new Member States are comparable to the French and German levels.

In a separate development, the EU managed to break a looming deadlock over the savings tax directive when Switzerland, Luxembourg and the EU hammered out a deal on the details as to how financial information is exchanged.