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Cyprus government response to speculation over EU-wide minimum tax rates

The Cyprus government has made it clear that it would not accept any proposal to impose a minimum tax rate across the EU. Cyprus has the lowest corporate tax rate among EU member states and the Finance Minister said last week that this is a critical factor for the continued success of the country's services sector.

It was reported in the local press that Cyprus would use its veto if such a proposal were to be put forward. “We support the positive business climate in Cyprus and we try to improve it,” the minister said. “A helpful factor is the low tax rate and both Cyprus and other countries will not accept changes that will undermine this.”However, the minister stressed that there is no proposal to introduce a minimum EU-wide tax rate, but merely speculation aimed at assessing reaction to the idea.

The speculation arose from a report in the American press ahead of a meeting of leaders of Eurozone countries at which pressure was unsuccessfully exerted on Ireland to increase its corporate tax rate.It was reported that a leaked proposal supported by Germany and France envisaged a minimum corporate tax rate of 17%.  For some years the EU has been proposing a Common Consolidated Corporate Tax Base (CCCTB) to provide a uniform framework for the calculation of taxable profits across the EU. This would remove distortions caused by different national systems and increase transparency. Enthusiasm for the CCCTB project waned when it was judged to be a significant factor in Ireland's rejection of the Lisbon treaty but the European Commissioner for Taxation has recently announced that the adoption of a CCCTB is one of his major aims for the next five years.

However, as all commentators agree, there is no suggestion of a harmonised minimum tax rate. It is instructive to note that Germany and France were reported to be pressing for harmonisation of tax rates as long ago as 2004, but no progress appears to have been made in the intervening seven years.