Hopes fade for agreement on EU tax plans this year

Date: 02/09/1999

By Peter Chapman

HOPES that EU governments will strike deals on planned new Union-wide savings and energy taxes by the end of this year are fading as London and Madrid continue to stonewall.

EU finance ministers will discuss both proposals at an informal meeting in the Finnish city of Turku next weekend. But diplomats say that British foot-dragging over the savings tax proposal and Spanish intransigence on the energy levy mean they stand little chance of making significant progress.

The Finnish presidency had hoped to clinch agreement on both plans by the end of its term at the EU's helm, and Union leaders sought to inject momentum into the savings tax talks at their June summit in Cologne by setting a December deadline for a deal.

A flurry of meetings of national tax experts are being held this month as the Finns strive to stick to that timetable. But many diplomats are now privately echoing German Finance Minister Hans Eichel's recent warning that a deal is not likely in the "foreseeable future".

The key stumbling block remains British Finance Minister Gordon Brown's repeated failure to deliver on a promise, first made in April, to come forward with proposals on how to exempt high-value foreign-currency 'eurobonds' from the new levy.

Brown is coming under intense pressure to unveil his report ahead of the finance ministers' get-together, after failing to deliver it in time for a meeting of tax experts this week.

Diplomats still hope that he will present a paper to his EU counterparts at the informal meeting itself, but say ministers will not be able to hold a substantive discussion on the issue because the detail of Brown's proposals will first have to be scrutinised by officials.

Under the Commission's draft savings tax plan, governments could choose between setting a 20% tax on interest paid to individual EU nationals in another member state or forcing banks to tell non-resident savers' internal revenue services about interest paid to them.

The UK has consistently opposed the current proposals, claiming they would drive the lucrative multi-billion eurobond market out of the City of London to New York or Zurich.

But Cliff Dammers, secretary-general of the City of London-based International Primary Market Association, which represents issuers of eurobonds, denied the British government was trying to kill the proposal by stalling. "There is a theory that the UK is trying to talk this thing to death. I think it is just that they have had difficulty in drafting their paper," he said.

But Acting Taxation Commissioner Mario Monti attacked the latest delay, saying pubication of the paper would be "an important signal" that the EU was serious about the December deadline.

Finnish diplomats also say there is no sign that Madrid is preparing to abandon its fierce opposition to the proposals drawn up by Monti for an EU-wide levy on energy usage.

Monti himself said this week that he expected progress to be made on the plan "in fairly short order", although he admitted that it still had "a fairly tricky course ahead of it". But Finnish officials say talks between Helsinki and Madrid aimed at finding a way out of the impasse have so far failed to produce any softening in the Spanish line.

The proposals currently on the table would impose minimum excise duties across all energy products and sources in the Union. "There is hardly any light visible at the end of the tunnel. I cannot see any possibility to make progress," said one Helsinki official.

Madrid has already rejected German presidency attempts to offer exemptions for coal burning and long transition periods for underdeveloped gas markets. Failure to reach a compromise deal this year would be an early blow to incoming Taxation Commissioner Frits Bolkestein, who has called on member states to support the plan.