Skip to comments.European Nations Racing To Lower Taxes
Posted on 09/21/2004 8:06:48 AM PDT by SierraWasp
Dutch moving to be latest tax cutters
Europe's race for a friendlier environment for investing
By Steve Goldstein, CBS MarketWatch.com Last Update: 10:51 AM ET Sept. 21, 2004
LONDON (CBS.MW) -- When the Dutch government Tuesday unveiled its corporate tax cut plan, it because just the latest in a series of fiscal policy moves by European countries seeking to woo more investment.
The Netherlands has proposed to lower taxes from a current nominal rate of 34.5 percent to 30 percent by 2007, a Finance Ministry spokesman said.
The nation's economy is overdue for some stimulation. Gross domestic product is on the decline, falling 0.2 percent in the second quarter vs. a 0.5 percent rise for the other European countries that use the euro as their currency.
Morgan Stanley recently said the Netherlands has turned into a bazaar economy that imports products and re-exports them, rather than manufacturing them at home. And though the government can't do a lot to keep up with the higher interest rates of neighbors like Belgium or Germany, it does have the power to cut taxes.
"The competitive pressure is working well. It's a good argument for why they have different rates" across Europe and not a uniform rate, said Paul Morton, an executive with Royal Dutch/Shell (RD: news, chart, profile) (SC: news, chart, profile) who is part of the Chartered Institute of Taxation, a European business group.
The Netherlands currently has one of the highest tax rates in the eurozone, with its 35 percent rate only slightly undercutting Germany's 38 percent and France's 36 percent nominal corporate rate.
But the Dutch move also comes amid pressure to join a tax-cutting wave led by Eastern European countries that are new to the European Union. See map of E.U. corporate tax rates.
New entrants into the European Union have an average nominal corporate tax rate of 21.5 percent, compared to the 31.4 percent rate of the 15 older EU countries and the U.S. nominal rate of 28 percent. Estonia goes so far as to delay corporate taxes entirely, only hitting up companies that are paying out dividends.
"It does play a role," the Dutch finance ministry's spokesman said of the Eastern European tax rates. "In the new European Union countries, there's a tendency to lower statutory rates. But there's also been tax cutting in Austria, Portugal and Spain," he noted.
Poland cut its rate to 19 percent from 27 percent, and Ukraine got its rate down to 25 percent from 30 percent.
France's finance minister, Nicolas Sarkozy, has expressed irritation with the low tax rates in Eastern European countries. He recently suggested that European Union aid be reduced for countries with low tax rates, a proposal that has been rejected to date.
Estonia's head of tax policy, Lemmi Oro, said her country will resist attempts to harmonize taxes.
"Taxes are an important instrument for economic growth that is in state hands," she said.
The Eastern European states have the backing of Britain, which also has fended off tax-harmonization calls -- and has a lower nominal tax rate than France and Germany, its largest economic rivals.
Of course, Eastern European countries are also competing vs. their Western European rivals in other areas, most visibly on labor costs.
To be sure, lower taxation helps bring in foreign capital, but isn't likely to be a massive driver, said Shell's Morton. "It's easy to exaggerate the impact (of tax cuts)," he said. "But it's one of those things that goes into pot and it can swing the balance occasionally."
European Union integration also is having an impact on policy. More companies are appealing to the European Court of Justice on rules they consider unfavorable.
Marks & Spencer (UK:MKS: news, chart, profile), the iconic retailer that recently fought off a takeover attempt by billionaire Philip Green, has sued Britain for refusing to grant a break on tax losses it incurred in subsidiaries outside the country from 1997 to 2001.
British authorities worry that while the government won't be able to tax M&S income for operations outside the country, it might end up having to rebate them for losses incurred elsewhere.
M&S is expecting a decision sometime in 2005 on whether it will get a rebate worth some 30 million British pounds. That ruling may force Britain to revise its laws on tax relief, observers say.
Countries are modifying their tax laws either in reaction or in anticipation of the court rulings, Morton said.
While laws are gradually becoming similar across Europe, it will take a while for there to be uniformity in the way companies are taxed and not simply the rate of taxation, said Tom van der Meer, an attorney at Amsterdam-based Loyens & Loeff who is chairman of the taxation committee of the American Chamber of Commerce in the Netherlands.
"It will take a long time to make sure that tax base is the same. People are looking at tax rates at the moment, because it is easier to adjust tax rates a little bit," van der Meer said.
Some companies are also starting to see tax authorities becoming more receptive and more consistent about the ways they tax, though Greece and to a lesser extent Italy are still notorious for inconsistent treatment by tax collectors.
"What I tend to see is tax authorities that are more open, that you're more able to get rulings," said Raymond Roelfs, group finance director at Versatel (NL:39126: news, chart, profile), a mobile phone operator that operates in the Netherlands, Germany and Belgium.
They seem to have finally realized that their brand of economics doesn't work as well as ours.
Sigh -- More tax cuts for the wealthy. < /sarcasm>
Even European socialists are lowereing taxes, yet Kerry advocates raising taxes.
I'm waiting for the protests and strikes that will inevitably follow the subsequent cuts in social benefits.
One of my favorite Exchange Traded Funds, (ETF), is EWO, the index fund for Austria.
Two years ago Austria started doing what Reagan and GW did with taxes.
Austria has been very successful, and we don't read about it from the socialists in Europe.
The link below takes freepers to a chart for EWO to see how reducing taxes impacted the stocks of that country.
Too little, too late. They are locked into Socialism, even though they are now starting to regret it. There is no escape for them now.
Now as to whether they have the intellectual honesty to admit Reagan was right... well, I guess they are doing so, through their deeds, if not their words.
Austrian School of Economics
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