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Finland and Germany want to discourage taxation competition in EU
Finnish and German ministers call for uniform corporate taxation system in Europe
The governments of Germany and Finland want to reduce taxation competition among countries of Europe, say the ministers of finance of the two countries, Germany’s Peer Steinbrück and Finland’s Eero Heinäluoma - both of whom are Social Democrats.
"We share the view that taxation competition is distorted", Heinäluoma said after the two met in Helsinki on Friday.
The two ministers feel that the EU should establish a common basis for corporate taxes - that is, they should agree on what income companies and organisations must pay their taxes. Under such a model, the tax rates themselves can vary from one country to another. This means not all tax competition would be eliminated in the EU.
"There has been discussion of this in the Commission, and I am sure that during the Finnish EU Presidency, which begins in July, we will move forward in these issues", Steinbrück said at their press conference.
Steinbrück took office in mid-October, when the new German Chancellor, Christian Democrat Angela Merkel, named her new government.
Tax competition is welcomed by business, which likes to minimise its taxation costs. If the rules of taxation were the same in all countries, it would not be possible for individual countries to try to lure business with the help of various kinds of deductions or exceptional tax cuts.
A reduction in tax competition would secure state tax revenue, but Heinäluoma feels that the arrangement could also be helpful for companies. It would especially make it easier for small and medium-sized companies to expand abroad.
"It would take less time and energy if the basic structures of taxation were the same in the different countries", Heinäluoma pointed out.
He also noted that the establishment of a company according to a common European model would be easier.
On the practical level, establishing a common tax base would make taxation competition more transparent than it is now, as it would be easier to compare the various countries. On a certain level, tax competition could actually become easier in a situation, in which a company would not have to learn about complicated deduction procedures or loopholes in the different countries: comparisons of the tax rates would be enough.
Heinäluoma said Finland would welcome uniformity in the tax base. He notes that Finland’s corporate taxation laws are quite clear. Last year, Finland lowered its corporate tax rate from 29 percent to 26 percent, and the capital gains tax on dividends from 29 percent to 28 percent.
"In some other countries there is a higher tax rate, but more loopholes", Heinäluoma noted.
Taxes have gone down in the OECD in the present decade, as countries compete for investments of multinational companies. The corporate tax in Ireland is the lowest in the EU, and even in Finland, it is below average.
"For a country like Finland it would be beneficial if there were a common minimum tax rate in the EU. However, there has not even been any talk of such a thing for now", Finance Minister Heinäluoma says.