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Estonia approves questionable tax amendment

  • 2007-12-19
  • Staff and wire reports

TALLINN - A government-approved amendment to the income tax law could spell legal trouble for Estonia in the not too distant future if it is challenged in EU courts, tax experts have said.
The amendments, which were drafted by the Finance Ministry, would make corporate income tax calculable on a per-annum basis and make advance tax payments obligatory. At the same time the changes would keep the current possibility in Estonia to postpone paying taxes until a shareholder takes out money from a business in the form of dividends.

In the government's opinion, the amendment will fully harmonize the order of taxation of Estonian enterprises with the income tax as provided by the EU's parent-subsidiary directive.
The amendments, in effect, change little to the current tax regimen, and Estonia is highly likely to face a legal battle in EU courts, which could make its tax environment unpredictable for two or three years, experts said.
Erki Uustalu, a tax consultant with PricewaterhouseCoopers, an international auditing company, said that the amendment may not be in conformity with the requirements of the EU's parent-subsidiary directive.

The Finance Minister admitted to the Baltic News Service that the ministry had not first consulted with the European Commission before approving the amendment, though Finance Minister Ivari Padar said on Dec. 13 that the change would ensure that EU requirements are met. Taavi Veskimagi, a former finance minister, said that while the proposed changes are beneficial for Estonian companies the Baltic state should be ready for accusations of non-compliance and even lengthy court proceedings. Veskimagi said that he's sure the amendment would in one way or another end up in the European Court of Justice.