Monti refines hit list of predatory tax breaks

Date: 10/09/1998

By Tim Jones

TAXATION Commissioner Mario Monti will next week publish a revised hit list of predatory corporate tax breaks targeted for abolition by the EU.

Once the inventory of more than ten tax regimes per country is completed, it will be handed to Union finance ministers in early December, with the ultimate aim of eliminating this perceived threat to the new single currency and the internal market.

The European Commission and national treasury officials are working to a tight deadline to produce the list, which is broken down into 'intragroup services' and 'financial services and offshore companies'.

Under the first heading, officials say they are sure to include the tax regime for multinationals establishing their European headquarters in Belgium specifically to carry out management services for their group.

This scheme, which can slash companies' tax burden to 5%, is also under investigation by the staff of Competition Commissioner Karel van Miert as a possibly illegal subsidy. "We will have a strong view on what is state aid and what are general measures. We have a very clear view on this," said Van Miert at a conference this week.

Similar schemes operating in the Netherlands, Italy and the Basque country will also almost certainly remain on the register, according to officials.

Finance ministers will have to decide whether to condemn high-profile regimes to encourage the establishment of financial markets in offshore centres in Europe.

These include schemes for reinsurance companies in Luxembourg and for insurers in Sweden as well as the zonal regimes for Trieste in Italy, Madeira and Santa Maria in Portugal, the Åland islands in Finland, the British dependent territory of Gibraltar and the Canary Islands.

However, Spanish Finance Minister Rodrigo Rato hinted this week that he would scale back some of the tax incentives offered to financial institutions in the Canaries after a meeting with Van Miert.

The revised list will be passed on to national tax officials who sit on the 'code of conduct' group, chaired by British Treasury Minister Dawn Primarolo, when it meets on 21 October.

Initial scrutiny will be carried out by separate subcommittees investigating intra-group schemes, chaired again by Primarolo, and financial services, chaired by senior Austrian treasury official Wolfgang Nolz. Reflecting their tight timetable, these groups will meet twice in the first two weeks of October.

The committee is bound by a ministerial decision to have the list and a report ready in time for the meeting of finance ministers on 1 December, which will make a recommendation to a summit in Vienna soon afterwards.

Trade-offs have already begun. The French and Belgian governments have linked progress in the code of conduct group to the UK and Luxembourg's willingness to compromise in their opposition to a Union-wide savings tax.