Dumping Fiscalanti-dumping tax
A number of EU countries fear the effects of tax dumping: Europe is struggling with tax policies
However, what worried the Belgium government was Ireland's lower costs, cited by a 10 per cent corporation income taxation for producers, well below Belgium's 39 per cent. "Naturally, taxation and labour costs are important," says Roland Delmotte, works manager of the factory. "Welcome to fiscal dumping, an area that is threatening to split Europe at the end of the 90s, just as Britain's lightweight labour rules have resulted in dumping in recent years.
Philippe Maystadt of Belgium shouted at a European Union Minister of Finances meet last months, saying that Ireland would steal employment through dishonest fiscal practices. It gained considerable backing from Germany, France and other European jurisdictions for greater harmonisation of company profit and interest rate harmonisation.
You are insisting that they should keep their own fiscal policy under European scrutiny, which has hindered harmonisation work. It also notes that the continent's states have intensified their own job creation competitiveness by granting more state aids to industries, which the European Commission estimated in 1994 amounted to ECU 43 billion ($50 billion) to producers alone, with Germany, Italy and France representing 80% of the population.
" In fact, many EU businesses are concerned that the surge in harmonisation will only lead to higher taxation, which will exacerbate Europe's competitiveness disadvantages compared to the fast-growing Asian and US economy. "It is the instincts of Europe's government to increase taxes," said Zygmunt Tyszkiewicz, General Manager of the EU employers' organisation Unice.
With a 1.5 billion DM (900 million dollars) semi-conductor factory in the United Kingdom, Siemens AG will commence operations this coming spring - the base income base at 33% is well below the 45 percentage point in Germany, which may be over 60% if local government taxation is taken into account. "It' s no mystery that the lower UK level of taxation is a key factor in why Germany is investing there," says Winfried Eggers, global taxation expert at the Federation of Germany's Industry in Cologne.
In view of the slow pace of economic development and an unemployed rate of almost 11 per cent on the whole block of 15 EU member states, more and more EU member states are turning to the use of fiscal incentives to attract more people. It is likely to increase further when the Union introduces a common European money in 1999, a move which should make it easier for employment and money to move around Europe.
Emboldened by the successful outcome of the derogations in Dublin, the Isle of Madeira and Trieste in Portugal, Italy, the Canary Islands are aiming for EU authorisation for a 1 per cent corporation income taxation exemption for the Canary Islands, as opposed to the usual 35 per cent. Last months, the Netherlands lowered its rates for funding multinational companies' subsidiary companies from 35 to 7 per cent in order to attract companies from Belgium, which is dominating this sector thanks to an actual VAT of less than 1 per cent.
In general, the pressures to reduce tax on finance and businesses to stop them from escaping have resulted in government raising labour tax and aggravating the issue of Europe's unemployed, says Mario Monti, EU Taxation Officer. In the EU, the tax on wages and salaries and other levies is estimated to have increased by an annual rate of 20 per cent between 1980 and 1993, while tax on equity and self-employed persons has fallen by more than 10 per cent.
"Mr Monti said: "This non-coordinated taxation system is sending the right message about the distribution of wealth between labour and investment. "In Europe, the impact of rising joblessness is becoming apparent. "Mr Monti, who heads a high-level group on EU taxation reforms, considers that the Union should restrict competition by establishing minimal levels of corporation taxes and savings at source, as it has done on VAT.
He and many other EU civil servants claim that Europe cannot endorse the level of fiscal competitiveness within the United States because of America's lack of labour force flexibility. According to Danish civil servants, its primary objectives are Luxembourg's failure to levy a taxation at source on interest income, which has drawn several hundred billion Deutschmarks from Germany's investment community, and specific taxation schemes for the funding of Belgian subsidiary companies and Irish producers and bankers.