In a few months, the United Kingdom (UK) will not only leave the European Union (EU), but will also stop paying contributions to the EU budget. This will put the EU in a difficult position as the UK is one of the most important “sponsors” of the EU. More specifically, as a result of Brexit, the EU will need to deal with 12-13 billion shortfall in its funds.
The EU bureaucrats, however, are not happy with their reduced budget as they need to act on important political priorities, such as, in the words of the president of the European Parliament Antonio Tajani, putting “the African continent on top of the EU’s political agenda”. To address the financial implications of Brexit, the EU will require its member states to pay more tax. In this regard, EU Commissioner Günther Oettinger stated:
“When the British leave the EU budget must shrink. But not by the full 100% of their contribution. Mark Rutte [the Dutch prime minister] is on the brakes: he doesn’t want the other countries to take on the full amount that the British are paying. But we in Brussels want fifty-fifty: six to seven billion in cuts and just as much new money added.”
The increased contributions which the EU countries will need to pay may lead to an increase of the taxes on companies and individuals in the EU which, with the exception of the tax rates of a few countries, are currently very high. In many EU countries, the total tax burden on taxpayers is about 50%. The high tax rates make such countries noncompetitive not only with regard to small low tax jurisdictions, but also with regard to the economically powerful the United States where President Trump has recently reduced the personal and corporate taxes.
Interestingly, despite its noncompetitive position, the EU intends to collect more money from its member states, thus further enhancing its disadvantaged position. In comparison, President Trump speaks about a second tax cut which will decrease the U.S. taxes even more. In 2018, at an event in Missouri, he said: “We’re actually going for a phase two, which will help in addition to the middle class, will help companies, and it’s going to be something I think very special”.
Due to the unattractive business environment in many of the Western EU countries, some EU entrepreneurs from those countries have decided to relocate to low tax EU countries which offer not only reasonable taxation rates, but also affordable prices of labour, property, and administrative services. At present, the EU countries with lowest personal income tax rates are Bulgaria (10%), the Czech Republic (19%), Hungary (9 + 2%), and Romania (16%)….