Kallas defends tax sovereignty

Addressing lawmakers on Feb. 13 about Estonia's accession to the European Union, Prime Minister Siim Kallas spoke in favor of the right of EU members to decide themselves about their tax policy.

"Lively discussions about tax policy are now under way in the European Union. Some countries wish to make it more uniform, while others (wish) to leave it more for the national governments to decide," Kallas explained.

"Estonia surely belongs to the second group, and we have expressed this vigorously in the Convention on the Future of Europe as a joint statement together with the countries that are close to us on that issue - Britain, Ireland, Sweden and Latvia," he said.

Right now the dominating position in the EU is that direct taxes must be set by each country on its own, the prime minister reported.

"But there are also countries that think otherwise. We defended the independence of tax policy and achieved at negotiations that our tax system favoring enterprise will remain in effect also in the future," he said.

In the words of the Estonian premier, tax competition is a factor promoting economic development in Europe. That vision is shared by several other EU member states, he said.

Estonia has been able to attract many Scandinavian business - in particular financial institutions - thanks to its favorable tax policies.

In fact, several Swedish government officials began drafting legislation last year aiming to levy taxes on Estonian subsidiaries of Swedish banks - such as Hansapanka and Uhispanka - that have reaped megaprofits in the Baltic tax haven.

"Tax policy is directly linked to a country's sovereignty, and in many respects citizens give their vote in elections based namely on tax policy choices," said Kallas.

Estonia is expected to become a member of the EU in May 2004.