New group set up to investigate fiscal magnets

Date: 19/02/1998

By Tim Jones

GOVERNMENTS are close to agreement on setting up a committee to vet corporate tax regimes which allegedly entice firms from one EU member state to another at the cost of thousands of jobs.

The new high-level group is likely to be established by finance ministers early next month and begin investigations within weeks into some of the Union's most blatantly competitive corporate tax breaks, according to EU diplomats and officials.

To avoid charges of victimising the Irish, the group will not turn its fire on the special low-tax regime at Dublin docks alone, even though it has long been the biggest bugbear of internal revenue officers throughout the rest of the EU. Foreign banks can benefit from an exceptional 10% rate of corporation tax if they invest in the Customs House financial services centre in Dublin.

"The group won't want to be seen to be picking on anyone so it is more likely to tackle three or four dossiers in parallel," said a European Commission official.

These could well include the Belgian 'coordination centre' scheme under which multinationals can establish a European headquarters in Belgium and, so long as profits arise from intra-group transactions, pay only 5% tax on their income.

"Other countries, including the Netherlands, operate similar schemes, but Belgium has cornered the market and has achieved a critical mass so more of these centres go there," said Terry Browne, European tax director at accountants Deloitte Touche Tohmatsu. "It's not that other countries object to the theory, but more to the Belgians' aggressive marketing of the regime."

Officials believe Portugal may also be in the group's sights for the corporate tax exemption until 2011 it offers to companies operating international services anywhere in Madeira, including offshore branches of foreign banks.

Since EU finance ministers agreed to phase out 'unfair' corporate tax schemes in December, a designated group of diplomats has been tasked with setting the rules for the monitoring committee.

Most of their governments now accept that the president of the monitoring committee should be elected by the group itself at its first meeting and serve initially for two years, although some smaller member states would prefer the presidency to rotate every six months in parallel with that of the Council of Ministers.

"Some member states have an interest in making this group look as much like a Council working group as possible," said one diplomat, pointing in particular to the Irish government.

Presuming the group is established by finance ministers at their meeting in early March and the representatives are nominated, its first gathering should take place on 23 March or 15 April.

The new monitoring group is meant to have high-level representation similar to the committee which advises Taxation Commissioner Mario Monti on tax competition, with Paris likely to nominate Patrice Forget, a senior civil servant in the finance ministry, and the Germans sticking with State Secretary Hans-Joerg Hauser.

The intention is that the group will meet no less than twice a year, and technical work will be carried out by sub-groups of senior officials.

Decisions will not be taken by vote. Instead, the group will agree to address a particular measure and then prepare reports for finance ministers. "This is a voluntary agreement so you can't have binding votes," said an official.

EU governments are close to agreement on setting up a high-level group to vet corporate tax regimes which allegedly entice firms from one EU Member State to another.