Report: Tax red tape hinders EU market

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BRUSSELS -- Tax bureaucracy is blocking efforts to create a single European market for cinema and television, the European Audiovisual Observatory warned in a report published Wednesday.

The Strasbourg-based EAO said red tape and a confusion of national and regional incentives were hampering competition with Hollywood. "When it comes to fiscal matters, the EU is still far from providing the conditions necessary for a single European audiovisual market, comparable, for instance, to the U.S. market," the report said.

The EAO also said it did not foresee any major changes in the immediate future, given the determination of EU member countries to maintain their sovereignty in tax matters -- and the need for unanimity amongst the EU's 27 member states to change EU tax law. It noted that even the ambitious planned EU constitution -- rejected in referenda in 2005 -- did not propose changing the rule of unanimity in tax.

The report said EU law has had a major influence on the development of national tax systems, and consequently on the growth of the European audiovisual sector. However, this influence has been uneven and the relationship between EU law and national tax laws remains extremely complex, it said.

It identified three key areas of EU influence:

-- EU competition law, in its capacity to regulate state aid to the audiovisual sector in the form of fiscal incentives. The European Commission thus regulates reduced tax rates, tax shelters (Belgium), investment allowances (France), tax credits (France, the U.K., Ireland) and accelerated depreciation (France). The report said that during the 2003-05 period, tax exemptions made up almost 40% of the total aid awarded in the EU, and this percentage is rising.

-- Value added tax or sales tax. The report said the EU has had two possibly contradictory effects on the audiovisual sector, as it has eliminated important indirect tax barriers between member countries on audiovisual goods and services, but it continues to tolerate national differences in VAT rates. These national differences include a plethora of varying VAT rates on cinema admissions, pay and cable TV, TV licenses and videos or DVDs (indeed, even within national territories, these products and services tend to have different rates).

-- Direct taxes. The failure at EU level to scrap double taxation, in particular of cross-border royalty payments, puts the European audiovisual sector at a clear disadvantage, the report said. According to current legislation, EU governments are free to levy direct taxes according to the place of residence and also according to the source of the income. The report notes that the governments are not obliged to take any measures to resolve the resulting double taxation problems, apart from cumbersome bilateral tax treaties.
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