EU Reports On States’ Tax Reforms In 2017

Categories: News

by Ulrika Lomas,, Brussels

27 December 2017

The European Commission has released the 2017 edition of its survey of Tax Policies in the European Union, looking at the reforms undertaken by EU member states during the year.

As well as looking at EU and international trends, the report evaluates national tax systems’ performance against four EU-level policy priorities: facilitating investment, boosting employment, ensuring tax compliance, and reducing inequalities.

The report says that 2017 saw member states renew focus on lowering tax rates. In 2017 five EU member states implemented cuts in their CIT headline rates: Croatia, Hungary, Italy, Slovakia, and the UK. Further cuts have been announced or are already scheduled in four states: Estonia, France, Luxembourg, and the United Kingdom. Only Slovenia increased its headline tax rate during 2017.

The report said that states are increasingly giving priority to incentivizing investment into young and innovative firms. However, because most countries reformed and expanded their research and development tax incentives during the crisis years, tax reforms in this respect were less numerous in 2016-2017. The report notes Italy extended both its allowance on investment costs as well as its tax credit system, and increased their generosity. In the context of overhauling its research and development tax incentive scheme, Poland not only increased the general tax deduction but also introduced special provisions for SMEs.

In addition, a number of countries undertook measures to support small companies or adapted thresholds or rates of their existing schemes, including France, Hungary, Luxembourg, Latvia, the Netherlands, Poland, Portugal, and Romania. Hungary simplified its small business tax and reduced the respective tax rate, both effective as of 2017.

The report notes that Latvia introduced a new tax regime for start-ups; Ireland introduced a reduced capital gains tax for entrepreneurs; and Finland implemented a five percent entrepreneur deduction into its personal income tax law. With respect to equity investment, Hungary, Portugal, and Cyprus introduced tax incentives for investors providing finance into young enterprises.

There have been reforms to embrace digitalization and engaging with the collaborative economy, the Commission reported. France, Estonia, and the UK were singled out as innovators in this area.

Most states sought to lower their personal income tax burdens in 2017, the report said. For instance, Croatia undertook a reform that reduced tax rates and simplified the system by reducing the number of tax brackets. Portugal is gradually eliminated the solidarity surcharge over the course of 2017, starting with the lowest two tax brackets. Finland implemented a general earned income tax reduction, by lowering the lowest and highest tax rates, increasing the maximum amount of the earned income tax credit, and increasing various deductions, the report said. The UK further increased the tax-free allowance and revised upwards the threshold for the higher rate tax bracket, and Denmark legislated for an increase in PIT rates from 2018.

Across the whole EU, top corporate income tax (CIT) rates have decline constantly over the past two decades. The decline of CIT rates slowed down after the crisis, the Commission reported, but the decline is said to have accelerated again in recent years. The picture with regards value-added tax is mixed; while many countries have implemented increases to their value-added tax rates, the average across the EU is broadly level with 2013 levels, the report says.

The report highlights that tax incentives for venture capital and business angels have become an increasingly important part of the investment and innovation policy mix in the EU and beyond. It highlights the findings of an EU-Commissioned report from PwC and the Institute for Advanced Studies (IHS), which recommended that states improve relief on capital gains; provide more favorable loss relief; ease restrictions on the participation of related parties; ease or removing minimum holding periods; and better monitoring the costs of providing such incentives.

The report also looked at the environmental tax policies in place in member states, looking in particular at subsidies and tax relief for petrol and diesel and tax relief for company car purchases and purchases of environmentally friendly cars.

Last, it discusses the importance of tax certainty and ongoing tax initiatives, including the common corporate tax base, and looked at tax administrative proposals in the pipeline.

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