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Mon, Nov 08, 2004 - Page 12 News List

New EU members sink plan to level tax playing fields

NO GO An initiative led by France and Germany to set a single corporate tax in Europe was met with outrage in countries like Hungary and Poland

AFP , BUDAPEST

He first threatened and then charmed, but either way French Finance Minister Nicolas Sarkozy drew little support for his plans to harmonize corporate taxes in the EU during a tour of new member states last week.

Sarkozy is the standard-bearer of an initiative led by France and Germany to set a single corporate tax rate in Europe because they believe western Europe is losing jobs to its eastern neighbors because their taxes are lower.

Threats

In September, Sarkozy shocked the new member states of the union when he threatened to cut their EU structural funding unless they raised their corporate tax rates to near the eastern bloc's average.

The threat met with outrage in countries like Hungary, the Czech Republic and Poland who argued that setting tax rates is the responsibility of national governments.

Polish President Aleksander Kwasniewski called Sarkozy's proposal a sign of "egoism" on the part of leaders of wealthier western European countries, while Hungarian Finance Minister Tibor Draskovics called it "completely unacceptable."

Sarkozy then turned on the charm.

Agenda

He visited Budapest and Prague last Monday and Tuesday where the tax controversy topped the agenda, but both EU states politely rebuffed any suggestion of fiscal harmonization, agreeing only to keeping competition fair.

"It is normal that there be competition between different European countries and that new [EU] members have lower tax rates than ours, that is an element of dynamism," Sarkozy conceded after meeting Czech leaders in Prague on Tuesday.

"At the same time it has to be understood that such an aggressive strategy which would eliminate taxes would be a mistake, because the logic of Europe is fair and not unfair competition," he added.

Average

Corporate tax rates average under 20 percent in most of the eight central and eastern Eur-opean countries that joined the EU on May 1 of this year, compared to an average of 31.32 percent in the other 15 countries in the bloc.

In Hungary, where the corporate tax rate is 16 percent, the message for Sarkozy was similar.

"We agreed to begin reflecting on what forms the basis of corporate taxes with a view towards harmonizing these elements in the European Union," said Hungarian finance ministry spokesman Ferenc Pichler.

"But we refuse to treat corporate taxes in an isolated way, different from other charges faced by companies, such as the social security, tax which is very high here and presents an obstacle," he said.

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