Bulgaria, which has one of the lowest corporate tax rates in the EU, has objected to the introduction of a 26% withholding tax on all transactions originating from sources in Bulgaria, Cyprus and Ireland by Greece.

The tax provisions are incompatible with the law of the European Union and infringe the fundamental principles laid down in the Treaty on the functioning of the Union, Finance Minister Vladislav Goranov said in a letter to the European Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici.

The introduction of the 26% withholding tax “is discriminatory and disproportionate to the intended goals,” the letter read.

“Thus it is assumed by presumption that the transactions are performed with the purpose of tax fraud or tax evasion only on the basis of the fact that the corporate tax regimes in these three countries are more favourable than the tax regime in Greece,” it said.

Bulgaria levies a flat 10% tax on corporate profit, one of the lowest in the EU. In Greece, corporate tax is minimum 26%.

Allowing a EU member state to adopt national corporate tax legislation that contravenes EU law “would have an extremely strong negative effect and would undermine the overall functioning of the Community internal market”, Goranov said.