EU efforts to eliminate tax conflict get bogged down

EU attempts to eliminate "harmful" tax competition are becoming bogged down in an avalanche of complaints by member-states against each other, finance ministers were told at the weekend.

Moreover, although progress is slowly being made on a controversial directive to set a minimum level of tax on savings, technical difficulties involving the Eurobond markets are still holding up agreement. However, ministers, at their informal meeting in Dresden, did agree on an increase of about €1 billion (£787.56 million) in the Agenda 2000 budget agreed in Berlin to meet MEPs' concerns about the under-funding of parliamentary pensions. Agenda 2000 is now expected to pass through the parliament without difficulty in the next few days.

Ministers were told that a committee set up to police the code of conduct on corporate taxation has now received over 200 complaints from member-states about specific allegedly harmful tax measures right across Europe.

Although the committee is still pledged to report on the compatibility of all the measures with EU competition principles by November, senior sources were expressing concern at the huge workload.

The Competition Commissioner, Mr Mario Monti, appealed to member-states not to add further complaints to their burden.

An Irish source said that the committee, which has been meeting for over a year, had yet to agree a clear definition of harmful tax competition. Broadly speaking, harmful tax competition is seen as measures within member-states which discriminate between sectors or against non-residents or which breach rules set by the OECD on transfer pricing by multinationals.

The flood of complaints is understood to have followed a major report commissioned by the Dutch government on tax measures throughout the EU, after it had become concerned that its often extreme flexibility in corporate taxation was likely to be targeted by the committee.

There can be little doubt that the Minister for Finance, Mr McCreevy, who described the number of complaints against Ireland as "very small" (although they are undoubtedly high-profile), will not be unduly concerned by any delay in reporting.

The code of conduct was never an Irish project, and he is likely to welcome the distinct impression now being given that, in the words of one official, "everyone's at it".

The ministers agreed to refer to a technical working group the principles of an agreement on how to deal with the Eurobond market in relation to attempts to impose a minimum EU-wide savings tax to avoid tax-dodging. This is a particular problem for the British, who say the directive threatens the City of London's huge trade in such bonds.

There is broad support for the idea of distinguishing between the wholesale and retail trades in Eurobonds, the latter being largely personal rather than corporate holdings and representing only some 5 per cent of the trade.

The problem is how to do this without imposing a huge bureaucratic cost on the whole market. The meeting also discussed final preparations for the launch of euro notes and coins. A consensus appears to be emerging to shorten the length of time, starting on January 1st, 2002, in which the new currency will be in circulation at the same time as national currencies. The Economic Affairs Commissioner, Mr Yves Thibault de Silguy, said that a relatively brief two-month transition period was now likely.