Bonn seeks pledge on fair tax

Date: 20/02/1997

By Tim Jones

THE German government is to ask fellow EU member states to sign a pledge not to use 'unfair' fiscal practices to lure away savers and companies when it launches its campaign against tax competition.

Having laid down a marker at January's meeting of EU finance ministers, Bonn will push hard for the drafting of a fair taxation code of conduct at the first gathering of a high-level policy group provisionally scheduled for 11 March.

In January, Finance Minister Theo Waigel complained bitterly about the loss of valuable German tax revenue - estimated by some to amount to as much as 10 billion ecu a year - to the fiscal enticements of other member states.

Luxembourg's banking secrecy and zero-rate tax on interest income for foreigners act as a magnet for German savers, while low Dutch corporation tax is encouraging firms in North Rhine-Westphalia to migrate across the border.

Officials at the finance ministry in Bonn are putting the finishing touches to a proposed code of conduct, which State Secretary Hans-Jörg Hauser intends to present to the high-level group set up under the chairmanship of Taxation Commissioner Mario Monti.

Under Bonn's plan, the code would take the form of a statement of principles followed by a shopping list of potential areas for harmonisation.

First, signatories to the code would accept that tax competition is undermining the fiscal base of the whole Union even though some member states are benefiting in the short term.

Offering tax breaks to attract capital tends to increase the burden of tax on labour, the Germans argue, and to foster the 'black economy'.

The draft code would call for a common approach to taxation policy in line with Monti's original proposal, which would aim to “stabilise revenues” by slowly reversing the tendency to levy taxes on labour and focusing instead on more mobile elements, such as capital.

For their part, Belgian representatives will ask for the code to specify those categories of goods or services which are so mobile that EU member states no longer exercise genuine fiscal sovereignty over them.

Once the problems had been identified, the code of conduct would go on to advocate harmonisation in particular areas - beginning with the lengthy and fraught endeavour to agree a common rate of tax on non-residents' interest income and including corporation tax.

Germany will take the same approach as that used in drawing up a common foreign and security policy for the Union. Initially, the areas where action can be taken in common will be identified, with policy formulated later.

From now on, global taxation policy will leave the arena of finance ministers' meetings and stay within this high-level group, which was established by the Dublin summit.

Governments appear to have taken Monti at his word when he asked them to nominate senior representatives with the ear of the minister.

The French government has replaced its civil servant representative with Budget Minister Alain Lamassoure, while the Dutch, Finnish and Spanish governments have all made political-level appointments.