Poland leads the tax jet set
Poland is leading the pack with 'transfer-pricing' regulations that set out how a business may account for services, products and sales within a company or group that are taxed in two different countries. It is estimated that 60 to 70 percent of all world trade is between related entities.
Since Poland introduced its legislation, Germany, Hungary and Lithuania have all adopted very similar laws. Next month, Russia is expected to approve transfer-pricing rules that are an exact copy of Poland's earlier regulations, and parliaments in the Czech Republic and Romania are currently working on such provisions.
PricewaterhouseCoopers' tax director, Matthew O'Shaughnessy, says there are two reasons why countries are following Poland's lead and introducing strict transfer-pricing regulations.
"After European accession a number of CEE countries no longer fear that by toughening up legislation affecting company taxation they will lose out on foreign investment.
"Secondly, within the last couple of years, the internal tax competition among CEE countries has strengthened. Most of them, including Poland, have substantially reduced their corporate income-tax rates. This has led to a situation in which, compared to countries such as Germany, France or the UK, some countries from the CEE can be considered as relative tax havens. "At the same time, the governments and tax authorities of these countries wish to ensure that, despite the lower tax rates, their tax income will not fall below an acceptable level."
Since Poland introduced its legislation, Germany, Hungary and Lithuania have all adopted very similar laws. Next month, Russia is expected to approve transfer-pricing rules that are an exact copy of Poland's earlier regulations, and parliaments in the Czech Republic and Romania are currently working on such provisions.
PricewaterhouseCoopers' tax director, Matthew O'Shaughnessy, says there are two reasons why countries are following Poland's lead and introducing strict transfer-pricing regulations.
"After European accession a number of CEE countries no longer fear that by toughening up legislation affecting company taxation they will lose out on foreign investment.
"Secondly, within the last couple of years, the internal tax competition among CEE countries has strengthened. Most of them, including Poland, have substantially reduced their corporate income-tax rates. This has led to a situation in which, compared to countries such as Germany, France or the UK, some countries from the CEE can be considered as relative tax havens. "At the same time, the governments and tax authorities of these countries wish to ensure that, despite the lower tax rates, their tax income will not fall below an acceptable level."
