Move to exempt consumers from fuel tax as trade-off for wider harmonisation deal

Date: 17/09/1998

By Tim Jones

THE Austrian government is seeking to exempt EU householders from paying fuel levies as part of a radical plan to broker a Union-wide tax harmonisation deal by the end of the year.

Vienna hopes this will be the catalyst for a succession of trade-offs between member states which will deliver agreement on common regimes for taxing energy use, company profits and interest from savings before the close of its EU presidency.

"If we are going to make any progress in the taxation field, then we have to try to construct a package which allows member states to trade off what they like and what they don't like," said Austria's top tax policy official Wolfgang Nolz. "It is impossible to make progress in a limited area."

Under the plan, outlined in a report prepared for an informal gathering of EU finance ministers in Vienna next Saturday (26 September), the Union would agree to a framework law for taxing energy products and set minimum rates of excise duty on electricity, gas and coal. Governments which did not want to tax private consumers would not have to do so.

"We are asking whether member states can accept, for a transitional period, that there should be binding taxation on the commercial sector but not on private households," Nolz told European Voice.

Although the European Commission is worried about such a dilution of its original energy tax proposal, the Austrians believe that the muted cross-border impact of an exemption for householders will persuade Brussels to accept the deal.

Attempts to forge common power taxes have foundered for six years, despite the commitment made by all EU governments to meet targets for reducing carbon dioxide emissions, first at the Rio earth summit in 1992 and then in Kyoto last year.

Austrian Finance Minister Rudolf Edlinger believes his proposal to exempt private consumers from fuel taxes, a key demand of the British government, could unlock a deal on taxing savings.

Germany and Belgium claim they are losing tax revenues worth billions of ecu every year because of variations in EU savings taxes. But, so far, plans to withhold 20% tax on interest paid to non-resident savers or force banks to give details of depositors' interest income to their home-state tax authorities have stalled in the face of opposition from Luxembourg and the UK.

The City of London fears that such a tax would drive the 3-trillion-ecu market in foreign currency denominated debt from its shores. The British treasury is seeking an exemption for these eurobonds from the scheme.

"We know this is hard for the UK but, in our view, if we introduced taxation on savings and exempted eurobonds, that would make the directive a failure since it would mean that only the less wealthy would pay the tax," said Nolz. "Maybe there could be a transitional regime for them, but they cannot be excluded in the long term."

In an attempt to buy off the Luxembourgers, Vienna is planning to play hardball over predatory corporate taxation regimes. Last December, ministers penned a code of conduct which aimed to eliminate tax breaks explicitly designed to entice corporate investment from one member state to another.

Austria now wants to push this further by asking the Commission to study the possibility of limiting the gap between the standard rates of corporate tax across the Union.

The Commission's recent decision to allow Ireland, a net recipient of EU funds, to introduce a standard 12.5% company tax rate for all businesses early in the next century in return for abolishing its current predatory 10% levy for foreign manufacturers worried several member states. Sweden, its nearest competitor, exacts a 28% tax, while the EU average is between 30% and 35%.