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03/12/2016

Bulgaria complains to Commission about new Greek tax

Euro & Finance

Bulgaria complains to Commission about new Greek tax

Vladislav Goranov [Dnevnik]

Bulgaria complained to the European Commission on Monday (30 March) about a new Greek law battling corporate tax avoidance that Sofia warns could undermine trade between the Balkan neighbours.

In a letter to European Economic Affairs Commissioner Pierre Moscovici, Bulgarian Finance Minister Vladislav Goranov took exception with Athens’ introduction of a 26% withholding tax on Greek business transactions originating in Cyprus, Ireland and Bulgaria — all of which have minimalist corporate tax structures.

Goranov called it “a discriminatory and disproportionate measure” and warned of a “deterioration of bilateral economic relations” between Bulgaria and Greece as a result.

According to Dnevnik, the EurActiv partner in Bulgaria, Greece’s aim is to fight tax avoidance via Bulgaria, where the corporate tax is lower (10%). Athens would therefore tax by 26% (the percentage of corporate tax in Greece) all deals with Bulgaria, and would return this tax only when it would be proven that their aim was not tax avoidance.

Goranov’s letter blasted the measure for “assuming that all transactions originating in these three EU states represent fraud or tax aversion”.

Recent years have seen a considerable spike in companies filtering business deals through affiliates in low-tax nations.

Greece has a 23% value added tax compared with Bulgaria’s 20%, for example, while the difference in corporate tax rates is even greater.

An estimated 14,000 Greek companies have operations in Bulgaria.

Following protests from employers organisations and businesses, the withholding measure was amended to exempt transactions whose legality is deemed “evident”.

But that softening has failed to quell claims — which Bulgaria now echoes — that the selective nature of the tax’s application is discriminatory and in violation of basic EU laws.

Background

Corporate tax and VAT tax vary greatly in EU countries. In Belgium, corporate tax is 33.99%, compared to 10% in Bulgaria, 12.5% in Ireland and Cyprus, 15% in Latvia and Lithuania and 16% in Romania.

VAT is typically around 20%, but in several EU countries lower VAT applies to certain categories of goods and services. 

Further Reading