Finance ministers at odds over tax harmonisation

Ambitions to put the harmonisation of company taxation on the EU agenda were firmly rebuffed yesterday by several EU Finance Ministers, although both French and German ministers made clear that they regard it as a longer-term inevitability in the context of monetary union.

The German Minister, Mr Oskar Lafontaine, speaking to journalists on the fringes of the Finance Ministers' meeting, even went as far as urging the ending of unanimity voting on tax issues, warning that decision-making on economic co-ordination would otherwise become impossible in an enlarged Europe.

However, Mr Lafontaine admitted these were personal views, and diplomats were quietly pointing out that he has no more chance of achieving such a reform than of harmonising tax rates. Both decisions would require the unanimous consent of ministers, several of whom, Mr McCreevy included, have made clear they would veto such a course. The British Chancellor, Mr Gordon Brown, warned fellow ministers than they were living in a globalised economy whose consequences they must accept. Harmonisation of taxes was simply not on, a view shared by the business community, he insisted.

The Luxembourg Minister of Economy, Mr Robert Goebells, said that tax competition between states was healthy and was something all member states were engaged in. The French Minister, Mr Dominique Strauss-Kahn, acknowledged the case for harmonisation in the longer term but stressed that the priority now was dealing effectively and speedily with harmful competition. The meeting noted a preliminary report from the group headed by the British junior minister, Ms Dawn Primarola, into "harmful" business tax competition. The report lists some 85 measures taken by member states which are potentially in breach of the code of conduct agreed last December which requires states to maintain an internal level playing field on business taxation.

Although the report names the IFSC scheme, Irish officials are not unduly concerned as agreement has already been reached with the Commission to eliminate its discriminatory elements, a point specifically made by the Competition Commissioner, Mr Karel van Miert, when he spoke at the meeting.

The Primarola report specifically lists measures in two of five categories of company taxation which it intends to study first: inter-group measures, which include 5 Dutch schemes, 3 Belgian, 3 Spanish, 2 French, 2 Luxemburger, and 2 UK; and in financial and insurance services, which include 3 UK, 2 Luxemburger, 1 Irish, 1 Italian, 1 Finnish, 1 Greek, 1 Portuguese, and 1 Swedish.

Ministers failed to move beyond the current deadlock over Agenda 2000 and proposals from some member states to cut EU spending in real terms.

An agreement was reached, however, at a meeting of the €11 on how the euro-zone would be represented at international fora such as the G7 Finance ministers. At such meetings the euro-zone will be represented by the rotating Presidency of the euro-11, assisted in the EU delegation by either France, Germany or Italy, which are already in the G7 (and Britain when it joins the euro). The delegation will also include a representative of the Commission and of the European Central Bank.

The deal is a compromise between small states which wanted a stronger role for the Commission and the G7 members who were anxious not to expand the number of seats at G7. A similar agreement on the IMF is understood to be close but held up on technicalities.