Company tax plan still stalled

Date: 22/05/1997

By Tim Jones

DUTCH officials have abandoned attempts to breath new life into a key fiscal measure aimed at protecting large firms from double taxation.

The proposal to regularise the taxation of parent companies and their subsidiaries has been stalled since 1993 and the continued reluctance of the German and British governments to do a deal looks likely to keep the argument raging on into the Luxembourg EU presidency which begins in July.

Last week's meeting of finance ministers failed to unblock London and Bonn's objections, which are focused on how the rules should be applied to partnerships, and the Netherlands' Gerrit Zalm gave up the fight.

“Two member states still object to crucial parts of the proposal,” he said. “There is no point in continuing negotiations at the technical level.”

The parents and subsidiaries directive aims to broaden the scope of a law agreed in 1990, allowing different types of firms to benefit from measures aimed at preventing double taxation when a subsidiary in one country transfers its profits or dividend payments to its mother company.

At the moment, major limited- liability firms are covered by the seven-year-old law, but the European Commission wants to extend this to all enterprises which pay corporation tax. This would bring savings banks and cooperative banks without limited liability under its scope.

These categories of company were excluded from the original legislation even though they form a big and thriving sector in Germany and the Netherlands.

The Dutch presidency was keen to get the legislation, which has had an arduous passage at both ministerial and European Parliament level, on to the Union's statute book.

At the root of the problem is the difference between member states' laws on the corporate status of partnerships.

German Finance Minister Theo Waigel complained that company law in France would allow French partnerships to benefit from the new proposal while Germany's equivalent firms would not qualify. Waigel and his officials believe all partnerships should be excluded from the scope of the legislation.

However, the Dutch presidency stuck to the Commission proposal and wanted partnerships to be covered by the directive so long as they paid corporate tax.

“The ministers were offered a unique opportunity to unblock this and give a political steer to their officials that they need,” said a diplomat involved in the negotiations. “They did not do this and the Luxembourgers are going to have to decide whether they want to bother to run with it.”