Top names head tax policy unit

Date: 09/04/1998

By Tim Jones

MEMBER states have agreed to appoint their top fiscal policy staff to a new group tasked with investigating 'unfair' corporate tax breaks within the EU.

In letters to the UK presidency, Union governments have confirmed the nominations of finance state secretaries and junior ministers to the 'code of conduct' review group set up in February.

Taxation Commissioner Mario Monti has already agreed to represent the European Commission.

Germany will send State Secretary for Finance Hans-Jörg Hauser, while France has nominated its top taxation policy civil servant Patrice Forget.

At its first meeting, now pencilled in for early May in Brussels, the review group will elect a chairman for two years. He will have the job of identifying tax regimes which should be targeted for investigation.

Diplomats say that Ireland's International Financial Services Centre (IFSC) is certain to be on the hit list when the group begins work.

Banks and insurance companies which locate in this enterprise zone in Dublin Docks pay only 10% corporation tax, compared with the 35% standard rate.

The Irish government itself, which was sceptical about setting up a special EU monitoring group, will be anxious to outline the recent findings of its own review of the activities of Irish-registered non-resident companies in the docks.

Earlier this year, a leaked government document revealed fears that some non-resident companies were using the IFSC for fraud and money laundering or as a mechanism for American firms to "defer indefinitely the payment of US tax".

Dublin has promised revised legislation to implement the recommendations of its own IFSC working group.

The EU review committee is also likely to begin investigations into the special tax rules for establishing 'coordination centres' in Belgium and the Netherlands, with attention focusing mainly on the former.

This scheme offers a special low-tax regime - often as low as 5% - to multinational companies which establish European headquarters in Belgium to carry out management services for the rest of the group on the continent.

The Belgians point out that other EU countries have similar schemes: the Dutch can offer rates close to 5%, the UK 15% and Germany 10%.

But critics maintain that Belgium has been by far the most aggressive in marketing this tax break, to the detriment of its neighbours.

Officials say that the review committee is also poised to look into the distinctive corporate tax regime operating on the island of Madeira.

This scheme gives companies engaged in international services anywhere in Madeira or industrial activities in the demarcated free zone an exemption from corporate tax until the year 2011.

Luxembourg, which has long complained about the 'unfair' regime in Dublin which entices banking activities away from the Grand Duchy, has similar concerns about the Madeira scheme.

When it meets, the group will have to tread a fine line between selecting a handful of the more obviously competitive schemes and being inundated with complaints.

"If certain countries feel that they are being picked on, they could easily find something to complain about in every member state of the EU," said one diplomat.