EU leaders abandon plans for a taxation deal by the summer

Date: 17/12/1998

By Tim Jones

EU LEADERS have scrapped Austrian plans to conclude an ambitious energy, savings and company tax package deal by next summer.

At last weekend's summit in Vienna, they agreed to decouple plans for fuel levies from their three-pronged tax programme and delay an overall accord until they meet in Helsinki in December 1999, at the end of the Finnish EU presidency.

The original draft conclusions which the outgoing Austrian presidency prepared for the summit anticipated that heads of state and government would call for their finance ministers to reach a "political basis for an agreement" on savings taxation at their meeting on 10 May.

But during negotiations on the text on the second day of the summit, French Prime Minister Lionel Jospin's argument that this was over-ambitious was supported by other EU leaders.

By the time the final conclusions were released, they stated that finance ministers should work on savings tax proposals "with a view to reaching an agreement before the Helsinki European Council".

Austria had sought to link agreements on taxing interest, energy use and corporate profits while it was guiding Union negotiations. Vienna felt that this would provide scope for trade-offs between member states sceptical about various parts of the overall package.

But this idea was shot down after Spain set out its fundamental objections to the energy tax plan at a meeting of finance ministers earlier this month.

The British government, which had long been sceptical of plans for taxing energy, was pleased with the offer to exempt fuel-use "for private consumption on social grounds". Madrid, however, declared its opposition to the whole idea of pan-EU fuel taxes.

"Energy taxation was the least positive outcome of the 1 December Council," Internal Market Commissioner Mario Monti told the European Parliament last week. "We have a member state toughening its position while others are beginning to converge. We are still a long way from finding a solution."

At last weekend's summit, EU leaders called for the panel policing the Union's code of conduct on corporate taxation to complete its work in time for the Helsinki summit. The group, which is chaired by UK Treasury Minister Dawn Primarolo, met this week to refine its list of 85 predatory tax schemes.

The summit also endorsed an Austrian suggestion that the European Commission should carry out a study into whether wide variations in standard corporate tax rates caused distortions in the internal market.

Ministers will have to produce a 'progress report' on the whole package before Union leaders meet at the Cologne summit in June.