Tax Policy of Estonia in the framework of the EU Integration

Tax policy is formulated through a political process. The institutional framework is important for the formulation of tax policy. The domestic situation as well as the international aspects influences the design of tax policy. Estonian tax policy choices are very closely connected to the process of EU integration. Estonia faces the challenge to harmonize its tax policy with EU rules and prepare for membership of the Economic and Monetary Union. This implies constraints to the policy choices of government. Some historical facts about Estonian accession to the EU Since regaining its independence in 19911 Estonia has been establishing relations with the European Union. Diplomatic relations between the EU and Estonia were established on 27 August 1991. The Trade and Economic Co-operation Agreement was signed in May 1992 and entered into force in March 1993. The Free Trade Agreement was signed in July 1994 and entered into force on 1 January 1995. European Association Agreement (hereafter the Europe Agreement) was signed in June 1995. On 28 November 1995 Estonia submitted its application for EU membership, based upon the unanimous decision of the Parliament approving the Europe Agreement between Estonia and the EU. The Europe Agreements entered into force in February 1998. At the 1995 Madrid summit the EU member states gave the Commission the task to compile reports on the candidate countries. The reports, completed in 1997, analysed the candidate countries’ readiness for accession on the basis of the Copenhagen criteria.2 At the 1997 Luxembourg summit it was decided on the basis of the Commission's report to start accession negotiations with five Central and Eastern European countries - Estonia, Poland, Slovenia, the Czech Republic and Hungary - as well as Cyprus and Malta. On 31 March 1998 Estonia started the accession negotiations with the European Union. The negotiations were based on Estonia's readiness to adopt the EU's principles and acquis communautaire and to implement it as of the moment of accession. The negotiations were concluded at the Copenhagen European Council on 13 December 2002. In March 2003, the European Parliament adopted a report giving the green light to the accession of Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia in 2004. The Accession Treaty was signed on 16 April 2003 at the Athens European Council. On 14 September 2003, Estonian citizens voted in favour of joining the European Union.3 The accession of Estonia took place on 1 May 2004