New EU Member Nations Cut Business Taxes

New EU members have sharply reduced corporate taxes to attract foreign investors, drawing the ire of some western EU states that complain they have been left to pay the bill. Since January 1, business taxes have fallen below 20 percent in most of the former communist countries that are to join the EU on May 1.

Within the union's 15 members, the average rate is 31 percent to 32 percent, despite having fallen sharply in the past few years, according to a recent study by the auditing group KPMG.

Upon entering the EU, new members will lose the decisive advantage of being able to completely exempt an investor from taxes for a period of 10 years or more. The European Commission insisted on gradually eliminating such practices, which it considers unfair state aid, during negotiations with each applicant country. The new members are Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.

They were left with the option of imitating Ireland, which has been successful in attracting investment with an average tax rate of 12.5 percent. Western EU countries that impose higher tax levels have become concerned that they will end up paying for the new members' lower rates. "Fiscal policy will be a big battle within the EU," said Jeffrey Owen of the Organisation for Economic Co-operation and Development.

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