Although the European Commission recently said regarding its income tax system that Estonia could become a country of tax avoidance, according to the Estonian Employers' Confederation (ETK), Estonia is a country with good tax discipline, which is usually not considered a country known for its possibilities for optimizing taxes.
"The main thing highlighted in the tax chapter of the European Commission report is that Estonia has a comparatively efficient tax administration and the rate of tax fraud is one of the lowest in Europe, and the Estonian corporate tax system supports economic growth as a whole," Toomas Tamsar, chairman of the Estonian Employers' Confederation, told BNS.
"Indeed, the report among other things notes that some features of Estonia's corporate tax system might be used by multinational companies for tax optimization," he admitted. "A cure for that is seen in the new 2018-2019 directives, which include regulations against tax fraud."
According to the employers, the Estonian tax discipline is generally good and the corporate tax system is competitive. "We think that the legal competitive advantage is good, but there could always be more of these advantages ahead of the rest of the world," they said. "Existing competitive advantages must be actively used for attracting foreign investments and talent into the country, and not to disavow them. While there is generally talk in European debates of tax optimization, then Estonia is not usually mentioned in that context. Countries on the blacklist rather include the Netherlands, Luxembourg, Malta, Cyprus and Ireland."
The employers said that individual characteristics of aggressive tax planning can be found in the tax systems of multiple member states. In addition, there are several special tax territories — including the Åland Islands, Canary Islands and the Isle of Man — which nevertheless are parts of the member states of the European Union. "Thus, there is no reason for Estonian to feel bad about themselves due to their uniqueness," Tamsar said.
"Estonia's Ministry of Finance can be commended in this regard, who until now has been able to hinder the harmonization of taxes in Europe and protect the uniqueness of our income tax system from the European legislator," he added.
The European Commission in its 2018 report on Estonia said that Estonia's corporate tax system may become attractive for international companies for aggressively reducing their income tax liability.
According to the Commission, Estonia seems like a potential international link for avoiding corporate income tax. The provisions of the Anti-Tax Avoidance Directives will have to be transposed into national law in Estonia by the end of 2018 and 2019. This will introduce new anti-abuse rules but it will be important to assess to what extent the transposition of these directives will limit the scope for aggressive tax planning in Estonia.
Editor: Aili Vahtla