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International
Markets News Wednesday 4 May 2011: European tax competition heats up Dutch prepare to cut corporate rates
By Finfacts Team May 4, 2011 - 10:41 AM
European tax competition heats up:
Following on from the UK’s March announcement to accelerate its plans to cut corporation taxes to retain and attract global business, the Netherlands has announced its intention to follow these cuts. It is matched by tensions between France and Germany. These moves come as part of a shift in the tax burden away from job-creating business onto consumers who faced recent sharp rises in VAT across Europe.
Netherlands announces further business tax cuts to retain its global competitiveness:
Frans Weekers, the Dutch Secretary of Finance, announced plans to cut the Netherlands’ business tax rate from 25% to 24% at the start of 2012. This will be largely funded by an increase in consumption taxes - - although no details were provided. In 2008, the Dutch had announced a plan to increase VAT from 19% to 20%. However, this was pulled with the start of global financial crisis.
This cut is in direct response to increased tax competition from other European countries seeking to attract foreign corporate headquarters to their countries – a specialty of the Netherlands with its favourable double taxation treaties. The Dutch had already cut the business tax rate from 25.5% to 25% at the start of this year, but a new challenge came from the UK. The Chancellor, George Osborne, stepped up Britain’s claim to be best destination for foreign direct investment by cutting the UK’s corporation tax rate by 2% to 26% instead of the planned 1% reduction in the annual budget. The UK plans to lower its business tax rate to 23% by 2014. Much of this reduction was funded by an increase in UK VAT from 17.5% to 20% from the start of this year.
Business taxes become key battleground:
The Dutch also had other countries in mind with their tax reduction strategy. There remains much animosity and nervousness around Europe about Ireland’s continuing refusal to increase its ultra-low 12.5% business tax rate, despite its need for a large banking bail out. Again, this comes with a planned VAT increase from 21% to 23% by 2014.
France is also reviewing how it can recapture some of its lost competitiveness to its big neighbour, Germany. Since 2000, the cost of employing French labour has overtaken Germany and now some 32% higher, largely due to a high employer tax burden. President Nicolas Sarkozy recently stated that an increase in VAT should be considered to underwrite a cut in labour taxes and help French industry regain is competitiveness. This would match a similar German labour tax levy cut in 2007, mirrored by a 3% VAT rise to 19%.
Elsewhere, as European countries have sought to consolidate their dwindling tax revenues during the financial crises, they have repeatedly turned to consumers to pick up the bill rather than corporations. There have been recent VAT rises across the region, including: Spain, Portugal, Greece, Hungary, Finland, Romania, the Baltic states, Slovakia and the Czech Republic.
Richard Asquith, Head of VAT, TMF Group commented: “The Dutch authorities want to demonstrate their continued determination to be seen as one of the leading destinations for European business. The UK and Irish positions has started the firing gun on a new round of corporation tax cuts. As with the recent banking bail outs, governments will seek to fund this strategy through hikes in VAT rates.”
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