The expanded EU has arrived ten steps to help avoid costly penalties.

• Author: Stocks, Duncan

May 1st has arrived. How successfully did you transition to the new order?

On May 1, ten countries--the largest group to join the European Union (EU) since the six-member European Economic Community was created in 1957--officially came on board to form an economic and trading coalition of 25 member countries. If your company is like most U.S. based multinationals conducting business in Europe, chances are you may not be as prepared as you need to be. But ignoring the tax implications of EU Accession or leaving it up to local subsidiaries to address may leave some companies open to financial and reputation risk.

The EU's expansion affects companies currently operating anywhere in the EU but primarily those that are based or trading in the 10 accession countries of Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. The new EU members will enjoy the benefits of trading in a harmonized, single market free of most trade barriers. The tradeoff, however, is that enterprises with operations in the new member countries must navigate new tax compliance regulations and determine how they affect cross-border trading on a going-forward basis.

Ignore at Your Own Risk

Despite the immediacy of the tax issues associated with EU Accession, it does not appear that companies have yet undertaken to assess how accession affects their operations. For example, in February 2004, a survey of 60 tax professionals from U.S. companies asked, "At what stage is your U.S. company in addressing EU enlargement issues?" The responses were, as follows:

* 33 said they were not addressing it at all

* 11 said their European subsidiaries were addressing it

* 10 reported they are investigating the effect of accession

* 5 said implementation was underway * 1 had implemented its plan.

While the sample was small and hardly constitutes a formal, scientific study, the results suggest a level of un-preparedness that may be pervasive.

The cost of ignoring the implications of EU accession could be quite high. Fines as much as $30,000 to $35,000 for a single compliance infraction may be levied against companies that fall short of the rules. And countries will be on the lookout to collect on those fines, to make up for federal revenues lost because of the lower income taxes, as well the loss of customs duty and excise levies. Moreover, failure to meet all requirements can delay or prevent some business transactions from going through...