The introduction of a European financial transaction tax and a common corporate tax base are at the heart of demands raised by Paris and Berlin days ahead of the discussion of the European Financial Stability Facility on 30 January in Brussels. The most vocal opponent of the financial transaction tax nicknamed Robin Hood, is the UK, while Ireland is adamant it won’t give up its low corporate tax rate that stands at 12.5 percent. The Czech Republic plans to call a referendum that should decide whether that country would join Europe’s new fiscal pact. The final draft of the European Financial Stability Facility should be ready by 20 January so that the leaders of EU nations can go through it before the Brussels summit.
What is Bulgaria’s position? This country is a firm opponent of universal tax rates. The government opposes the “tax base harmonization”. Finance Minister Simeon Djankov has sent letters to ten countries that are not members of the Eurozone, suggesting the removal of texts about tax and economic harmonization. The latest version of the EFSF includes obligations pertaining to the coordination of economic policies that are unacceptable for Bulgaria. Bulgaria subscribes to the requirement for fiscal discipline that should keep budget deficits below 3 percent and state debts, below 60 percent of GDPs. If however texts about the financial transaction tax and the common corporate tax base remain, Bulgaria will sign the general agreement but with a special clause for non-participation in the chapters of the pact that it opposes. Minister Djankov has suggested to place disputable texts as item one on the agenda of the meeting of non-Eurozone countries finance ministers scheduled for 23 January. Bulgaria insists that all signatory countries of the European Financial Stability Facility outside the Eurozone, should be given the status of observers with the right to attend Eurozone informal summits. The sharp Bulgarian response has been triggered by last minute changes that Paris and Berlin made to some chapters in the draft. In this way unlike the original EFSF version promoting an economically stronger union, the new version looks more like a pact for stability, coordination and management of the Eurozone.
What does Bulgaria gain and lose from the new version of the European fiscal pact?
The introduction of a common tax base would mean that Bulgaria would lose some of its advantages in EU, given that this country has the lowest corporate tax rate in the bloc, 10 percent. Any tax rise would seriously mar the conditions for doing business in Bulgaria would scare off foreign investors who are more than welcome in times of crisis. As to the financial transaction tax, experts explain that banks will simply increase their commission fees meaning costlier service for bank customers. Bulgaria has fears that the financial transaction tax will banish investors from the whole of Europe, including Bulgaria. In the meantime, this country strongly counts on foreign money inflow lured by its financial stability, good macroeconomic indices, low inflation and low taxes. In estimates of the European Commission the annual revenues from the financial transaction tax will come to EUR 60 B. The Bulgarian financial sector’s revenues from it have been estimated at EUR 180 M. This tax will hurt pension funds and insurance companies most. The introduction of the financial transaction tax will act to contract the market and the economy, and part of the companies might even decide to leave Bulgaria to avoid this new tax burden.
Translated by Daniela Konstantinova
