EU finance ministers in fresh bid to win accord on savings tax

European Union finance ministers will renew attempts on Tuesday to satisfy an Italian request on milk quotas that stands in the way of long-sought common rules for the taxation of income from savings.

The EU is seeking to adopt a bill that would allow its member states to boost revenues by taxing EU savings held abroad.

But Rome has repeatedly refused to back the tax rules unless the EU allows its farmers to repay in instalments and under favourable conditions €648 million of fines due for breaking EU milk production limits.

Italy has also criticised the tax plan by saying it leaves untouched banking secrecy rules in key financial centres like Switzerland and Luxembourg and does little to curb tax fraud.

The Italian parliament passed a government decree on Wednesday that would allow its milk producers to repay the EU fines over 30 years and with no interest rates.

The decree is subject to unanimous approval by EU members.

"We are confident that we will win the backing of the Ecofin (EU finance ministers)," Italian agriculture minister Gianni Alemanno said earlier this week.

Some EU members, mostly small northern European states, believe the repayment scheme is too big a concession to Italy.

"We think 30 years is too long and a zero interest rate too low," said a diplomat from a country that wants to see Italy back down.

EU ambassadors will debate over milk quotas at a last-minute preparatory meeting on Monday before the issue is put to the ministers at talks in Luxembourg on Tuesday. The ministers are also expected to tell France to curb its deficit.

The European Commission, the EU's executive, believes the scheme is illegal state aid. But EU states could overrule the Commission if they all agree on it.

Under the planned tax rules, 12 EU countries would start sharing information on savings held by non-residents abroad.

However, banking privacy advocates Luxembourg, Austria and Belgium will impose a withholding tax of up to 35 per cent on the income from non-residents' savings instead of sharing data, a decision that waters down the EU's ambitions against tax fraud.

Switzerland and other non-EU financial centres are finalising an accord that would also lead to a 35 per cent withholding tax. - (Financial Times Service)