Estonia Fighting EU to Maintain Current Income Tax System

Siim Lõvi //ERR

Estonia is doing all it can to maintain its current income tax system in the EU tax debate, Minister of Finance Keit Pentus-Rosimannus (Reform) told ERR on Tuesday, confirming reports of Estonia, alongside Hungary, blocking a revised set of EU tax rules.

“It is true, our primary interest is gaining the confidence that the Estonian corporate tax system would be maintained. And if we have the confidence, we can move forward with other tax questions. But until we do not have that guarantee, Estonia will indeed set such a reservation,” Pentus-Rosimannus said.

EUobserver reported on Monday that Estonian and Hungarian diplomats have blocked a revise set of EU tax rules – potentially derailing an effort to curb the race for ever-lower corporate taxes in the European Union.

After years of mulling new rules on business taxation, member states have now put a new ruleset on the table, which has been called “unambitious, but at least a step forward.”

Chances for a breakthrough are low, with EU commissioner for economy Paolo Gentiloni publicly telling MEPs last week that Hungary and Estonia are the ones blocking the new rules – officially known as the Code of Conduct for Taxation.

On Tuesday, EU ministers of finance will vote on the proposal.

The finance minister said the issue mostly concerns preparations for the drafting of a EU minimum tax directive.

“Since this is absolutely the most important topic in terms of taxes for Estonia, we want to understand what kind of proposal the European Commission will come out with, how do they see a minimum tax being implemented in the European Union,” Pentus-Rosimannus said.

She said the EU can move on with other topics if Estonia receives security about changes not affecting the current Estonian income tax system.

The finance minister noted that Estonia would be pleased with a solution offered by the Organisation for Economic Co-operation and Development’s (OECD), which would see countries coming to agreements.

“The OECD proposal only affected major global companies with an annual revenue above €750 million and there were multiple exceptions for Estonia. Subsidiaries of such large companies operating in Estonia would be exempt from the regulation or minimum tax, if their turnover is less than €10 million and profits are less than €1 million per year,” the minister said, adding that the EU now wants to take things a step further by establishing a minimum tax union-wide.

“And if we achieve on an EU level that we stay with the OECD framework, which means our local companies with revenue below €750 would be left out of the system of having any minimum taxes, we have agreed to that in the OECD and it could be implemented in the EU in that form,” Pentus-Rosimannus said.

“But we cannot agree with any additional attempts to impose such general taxes on companies regardless of their revenue and that is how we protect Estonia’s interests in that question,” she added.

The minister also pointed out that relatively, Estonia collects more income tax than Germany and France. In Estonia, for example, corporate income tax makes up just over 6 percent of the total tax revenue. Those percentages are smaller in France and Germany, 4.6 and 5.6, respectively.

“Perhaps this characterizes that our current system is already effective and that is why we have something to defend in these debates,” Pentus-Rosimannus said.

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Keit Pentus-Rosimannus
Academy of Liberalism