In the first part of 2019, the European Parliament issued a report which argues that seven EU countries, namely, Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta, and the Netherlands, display traits of tax havens and facilitate aggressive tax planning. Although the report was prepared mainly by the committee on financial crime and tax evasion at the European Parliament, it was adopted by the general assembly of the European Parliament. This gave the report a significant political weight.
The report was a logical outcome of a series of publications, based on leaked data from accountancy and law firms, that revealed secretly built tax optimization operations in some of the EU countries. The operations allowed large companies, such as Allergan, Apple, Disney, GlaxoSmithKline, IKEA, Koch Industries, Nike, and Skype, to create tax optimization opportunities that served little or no commercial purposes. The seven countries identified by the report include some of the smallest nations of Europe and together account for less than 9% of the total population of the European Union.
According to Petr Ježek, the chairman of the committee of the European parliament responsible for drafting the report, the seven countries identified by the report were able to facilitate aggressive tax planning practices for years because of their power to block tax reforms in the EU Council. The adoption of such reforms requires a unanimous agreement of all EU member states. Ježek explained the lack of unanimity by noting that some EU countries “clearly profit from the uneven and unfair situation”.
The report published by the European Parliament may lead to EU regulations that eliminate some tax optimization opportunities in the above-mentioned seven countries. Therefore, companies willing to benefit from low taxes without the risk to be affected by EU anti-tax avoidance measures are advised to establish their operations in mid-shore countries that were not accused by the European Parliament in being tax havens. For example, Bulgaria, an EU country having the lowest corporate and personal income tax rates (both rates are 10%) and the lowest labour costs in the EU (EUR 5,30 per hour), is an excellent location for launching cost-effective business operations and benefiting from low tax rates.
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