NCPA - National Center for Policy Analysis

European Union's Tax Rules Backfire

October 9, 2003

A number of large multinationals -- mostly American -- have moved their European headquarters and finance operations out of traditional European Union locales to Switzerland and Ireland, aiming to avoid costs associated with so-called tax harmonization. That's the EU's term for its effort to end competitive tax breaks among member states, a practice Brussels regards as harmful.

The corporate moves, by such big names as John Deere, Ralph Lauren and General Mills, are fueling concern among business boosters and revenue officials in some EU countries, particularly the Netherlands and Belgium, which are losing their luster as tax havens.

  • High-tax France and Germany are suffering the most defections, but the phenomenon may also be spreading to the so-called Benelux region, whose business-friendly tax regimes have long made it the European base of choice for American multinationals.
  • In the World Economic Forum's most recent annual report on global competitiveness, ratings for the Netherlands and Belgium plunged while they surged for Switzerland, a non-EU member.
  • Once a European leader in attracting direct foreign investment, the Netherlands saw such inflows slump 43 percent last year to $29 billion (€24.57 billion), one of the biggest drops among 30 industrial countries, tracked by Paris-based Organization for Economic Cooperation and Development.

The shift is partly attributable to the EU's tax-harmonization drive, lawyers and development officials say. The European Commission, the EU's executive branch, has tried to do away with "harmful tax competition" between member countries by clamping down on uncompetitive practices -- such as state aid and various shelters -- that have long figured in tax planning by multinationals.

Source: Glenn R. Simpson and Dan Bilefsky, "EU's Tax Changes Scatter Corporations: Switzerland, Ireland Draw Companies Seeking to Avoid a Rise in Obligations," Wall Street Journal, October 9, 2003.

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