There is something that made my tax lawyers heart beat faster over the last weeks, and that was the revised opinion of the advocate general in the case of Banca Popolare. It regarded the qualification of the IRAP (a regional business tax in Italy, levied at the level of the communes) as a VAT look-alike and thus incompatible with European legislation, where the AG ruled in favor of the taxpayer. Even after the chicanes of the European Court, and the member states with their hidden agendas, all could not withhold Stix-Hackl from letting sound tax wisdom prevail. I'm proud of Christina for her to be the rock, in what can be considered a recurring and nasty tax storm each taxpayer is looking for.
Hopefully, the Lithuanian government realizes that the end is nearing when it comes to the polemics surrounding the incompatibility of the road tax levied during the first year of Lithuania's membership of the EU. (See story on this page.)
Getting back to the actual topic, the reason for my excessive joy is the fact that the Latvian government seems to be serious this time about revisiting its income tax system. Although ideas have been in the air for some time, things are becoming material at this point in time. Latvia's government has initiated a proposal that will gradually reduce the personal income tax rate from 25 percent to 15 percent by 2009. The latest proposal does not only include a tax rate reduction applicable to business income of individuals but also to any income earned by individuals.
Now you might think that I am pretty satisfied with a lower tax burden for Latvian citizens, which is very much the case. Nevertheless, there is a more profound reason for my satisfaction, which is that the Latvian government, by taking this initiative, has illustrated that it is contra-productive to keep a-symmetric principles alive in tax matters.
Let me explain: the corporate income tax in Latvia is 15 percent, and the current personal income income tax 25 percent. You don't need much imagination to realize that business reality has been looking for (artificial) structures to optimize their tax position. Creating symmetric systems on the level of corporate and personal income tax shows maturity and initiates a tax system that is based on economic rather than on legal reality. I am happy to see that Latvia takes the leap in a non-complex way: it can only benefit through increased international attractiveness and can serve as an example for some Western countries who got stuck in the middle over the last years between budgetary worries, flat-tax initiatives and anti-abuse legislation.
Luc Nijs is the Head of Tax
at Sorainen Law Offices