Bulgaria assails Greek law fighting tax avoidance

(SOFIA) - Bulgaria complained Monday to the European Commission about a new Greek law battling corporate tax avoidance that Sofia warns could undermine trade between the two Balkan neighbours.

In a letter to European Economic Affairs Commissioner Pierre Moscovici, Bulgarian Finance Minister Vladislav Goranov took exception with Athens' introduction of a 26 percent withholding tax on Greek business transactions originating in Cyprus, Ireland and Bulgaria -- all of which have minimalist corporate tax structures.

Goranov called it "a discriminatory and disproportionate measure" and warned of a "deterioration of bilateral economic relations" between Bulgaria and Greece as a result.

Athens voted the withholding tax on March 21 in an effort to recoup money lost to Greek companies operating in nations granting them "privileged fiscal status" and allowing them to avoid tariffs that would be due on deals done in Greece.

Goranov's letter blasted the measure for "assuming that all transactions originating in these three EU states represent fraud or tax aversion."

Recent years have seen a considerable spike in companies filtering business deals through affiliates in low-tax nations.

Greece has a 23 percent value added tax compared with Bulgaria's 20 percent, for example, while the difference in corporate tax rates is even greater.

Around 14,000 Greek companies have operations in Bulgaria.

Following protests from employers organisations and businesses, the withholding measure was amended to exempt transactions whose legality is deemed "evident".

But that softening has failed to quell claims -- which Bulgaria now echoes -- that the selective nature of the tax's application is discriminatory and in violation of basic EU laws.