Commission support for action plan on unfair tax

Date: 02/10/1997

By Chris Johnstone

PROPOSALS drawn up by Taxation Commissioner Mario Monti to combat unfair tax competition between countries and clamp down on tax dodging by individuals have won the backing of the full Commission.

The four-part action programme will now be discussed by EU finance and economics ministers at their next meeting on 13 October.

Monti's core concept of a code of conduct to prevent countries from competing with each other for jobs and tax revenue through company tax incentives has been reinforced with a call for governments not to bring in harmful new measures and, over time, to phase out the existing ones which are deemed to be damaging.

However, Monti is still refusing to single out particular national tax regimes as harmful. The result is that most member states are living in a surreal world where they have so far supported Monti's proposals because they believe they will affect everyone but themselves.

The guidelines do, however, give a general picture of the company tax perks which could be targeted. These include special low rates of duty within a country, specific tax benefits reserved for non-residents, advantages given to a firm although it is carrying out no economic activity, and a definition of company profits which varies from internationally accepted rules.

Monti is looking for governments to sign up to a common approach to closing loopholes in taxing capital income, such as dividends from shares or interest on bank accounts earned by expatriates, by the end of the year.

Among the options suggested are increased tax cooperation between member states or a minimum level of withholding tax across the EU. Monti believes that Luxembourg, which has in the past held out against harmonised taxes on capital, should be willing to accept such a measure as part of an overall reform.

He added that a proposal to eliminate the current lengthy and complex procedures for businesses to avoid being taxed in more than one country (so-called double taxation), when interest and royalty payments are transferred between companies, would soon be tabled.

Unfair competition caused by differing rates of value added tax will also be attacked where the problem is at its worst. Uneven levels of VAT on investment gold, passenger transport and some sources of energy have resulted in businesses crossing European borders to concentrate where the tax advantages are highest.