Austrian tax changes annoy the EU and Germany

The European Union and the German government have expressed annoyance at a new Austrian corporate tax regime far lower than the previous one.

The new tax rate is 25 per cent down from 34 per cent. It has come into force from the beginning of this year and has led to a dramatic increase in the number of companies locating in the country. The number of corporate relocations is about 30 per cent higher than 2003, according to the Austrian government. Companies and investors from high-tax Germany and Italy have been at the forefront of relocations. The new tax rate is one of the lowest among long-standing EU member states.

The Bavarian government has complained that Austria is attempting to lure Bavarian jobs across the border. Austrian ministers say they have little choice but to reduce tax rates because rates in new EU accession states are even lower. Corporate tax in Slovenia is 19 per cent; the rate in the Czech Republic is 24 per cent while Hungary levies a tax rate of just 16 per cent.