Corporate income tax as a tool for competition between EU member states
Taking into account that there are different corporate tax rates in European Union member states, corporate income tax is used as a tool to attract investors and companies. Several European Union member states want a new regulation stating minimal effective corporate tax rate in European Union.
Initiative for this comes from countries with highest effective corporate tax rate- France, Austria, Sweden, Great Britain and Belgium. These member states want, not only common corporate tax rate, but also minimal effective tax rate. Minimal effective corporate tax would eliminate competition of corporate tax regulations between member states.
Highest effective corporate income tax rate is in Cyprus, France, Italy, Austria- states that wants common minimum effective corporate tax rate in Union. Lowest effective tax rates are in Lithuania, Estonia, Ireland and Latvia.
In Latvia corporate tax rate is 15%, but taking into account 20 tax reliefs that companies can use: for stimulation of investments, for specific business sectors, social characteristic and other reliefs. Many of these reliefs can be applied simultaneously resulting in effective tax rate of 6.4%.
Last year total amount of paid corporate taxes was 362 million EUR, it is less then a half of calculated amount that was decreased by corporate tax reliefs. In year of 2013 relief of corporate taxes accounted for amount of 374 million EUR. Most part accounting for relief for investments, transfer of losses from previous years, accelerated depreciation of fixed assets and relief for purchases of new production equipment.
Also there are regulations that limit decreasing of corporate income tax- for example payments to off-shores are subject to tax of 30%, also there are norms prohibiting inflation of expenses not related to economical activity.
Baltic States have one of the most attractive tax regime for companies and offer great tax reliefs and benefits for companies that are investing resources in development and want to grow.
Effective corporate tax rate (2012 data)
Eduards Dzintars, lawyer of the Gencs Valters Law Firm in Riga.
Practising in fields of Tax systems in Latvia, Estonia, Lithuania
T: +371 67 24 00 90
F: +371 67 24 00 91