Monti gets tough on fiscal competition

Date: 13/03/1997

TAXATION Commissioner Mario Monti has called on member states to tell tales on their partners in an effort to kick-start his campaign against fiscal competition in the EU.

At the first meeting of his new ministerial-level group on taxation policy this week, Monti invited all the participants to draw up lists of taxation measures taken by neighbouring countries which had unfairly enticed business away from their borders.

“Most important at a first meeting is to agree on objectives and on a calendar,” said one of the participants. “Between now and the summer, we must decide what subjects should be a priority and only then will we be able to establish a code of good conduct.”

The budget ministers and secretaries of state who make up the Monti group will bring their 'black lists' to the next meeting at the end of April.

The German government has been pushing hard since January for an EU-wide agreement to end what it believes to be 'unfair' fiscal practices by other member states. Bonn claims the loss of tax revenues from individuals' savings and company profits costs its finance ministry 10 billion ecu a year.

The concern expressed by State Secretary Hans-Jörg Hauser at the meeting was echoed by Belgian representative Freddy Willockx.

The spiriting of Belgian cash into Luxembourg is so endemic that even the Socialist Party, a governing coalition member, recently owned up to a clandestine 500,000 ecu account in the Grand Duchy.

Germany and Belgium want a code of conduct to be drafted which would aim to stabilise revenues by committing signatories to switch their tax base away from labour on to highly mobile capital and scarce resources or pollutants. Once member states had agreed on the problems, the code would advocate a degree of harmonisation for taxes on interest income earned by foreigners and tax breaks for investment.

“We are becoming more and more worried that, once the single currency is in place and member states lose powers over monetary policy, they will increasingly use fiscal policy in a competitive way,” said another official present at this week's meeting.

A recent survey of tax incentives in the EU by accountants Deloitte Touche Tohmatsu revealed a high degree of competition between member states, with some, such as Denmark and Ireland, aggressively marketing the tax breaks they had to offer abroad. Belgium and the Netherlands also vie with each other to attract foreign investment through highly effective fiscal inducements.

French Budget Minister Alain Lamassoure said the EU's regime for tackling unfair tax competition should be brought into line with its rules against illegal state aids to industry.

“Under European law, we have a good system for controlling public subsidies to firms with competence for the Commission and enforcement by the Court of Justice,” he said. “We should have an equivalent system of legal sanctions for fiscal aid.”

Meanwhile, after weeks of delay, the Commission this week finally adopted its plan to raise minimum excise duties on motor and heating fuels, and extend them to electricity and natural gas.

The plan, which had run into fierce opposition from industry and some Commissioners, was adopted after amendments cut the level of tax increases proposed and stressed governments would be able to reduce non-wage labour costs to compensate for the added burden on business.