Enlarged EU shows big tax level disparity: study

European Union newcomers have significantly lower corporate and income tax rates than the bloc's old members, but they are not guaranteed to see floods of foreign investment as a result, an EU study showed on Thursday.
A European Commission paper on taxation systems in Europe adds to a heated debate in the bloc that pits Germany and France, which want direct EU taxes to be harmonised, against Britain and most new member states, who oppose the plan.
The report by the EU's executive said the average effective tax rate on corporate income was 31.4 percent for the bloc's 15 old members, compared with 21.5 percent for newcomers.
The top average personal income tax rate was 46.2 percent in the EU-15 against 34.9 percent in the new member states.
But the paper showed that in many new members states, high indirect taxes and big social security contributions undermined advantages resulting from low direct taxation.
"The low share of direct taxes in the new member states is counterbalanced by higher share of indirect taxes and for the Czech Republic, Poland and Slovakia by social contributions," the report said.
"In an investment decision, direct taxation is just one element taken into consideration," commented Jean-Pierre Laet from the Commission's taxation department.
Still, the total tax burden in relation to gross domestic product was 6.6 percentage points lower in the new member states in the average that in the EU-15.
Germany and France have proposed tax harmonisation across the EU, possibly involving a minimum corporate tax rate, to avoid "tax dumping" by countries eager to lure investors.
The Commission says it is unlikely to draft any legislation on harmonising taxes, because the proposal does not enjoy sufficient support in the bloc. Britain and most EU newcomers vehemently oppose any such regulation.
The report said that Sweden recorded the highest tax-to-GDP ratio of 50.6 percent, followed by Denmark with 48.9 percent and Belgium with 46.6 percent.
The lowest ratios were observed in Ireland, 28.6 percent, Lithuania, 28.8 percent and Latvia, 31.3 percent.
In general, tax burden as part of GDP declined in the EU-25 to 40.4 percent in 2002 from 41.1 percent in 2001 due to tax cuts and low economic growth in many countries.