Monti prepares tax rule book

Date: 08/05/1997

By Tim Jones

GUIDELINES aimed at ending harmful tax competition between European governments will be ready within a month, according to Taxation Commissioner Mario Monti.

If approved, Monti's 'code of conduct' for corporate taxation - together with savings tax harmonisation - would be a huge leap forward in the drive towards a common European fiscal regime.

“The code of conduct will comprise mainly principles, but will have a sufficient degree of precision so as to lend itself to effective monitoring through peer review,” said Monti after a meeting of his high-level taxation policy group yesterday (6 May).

Several group representatives, including junior ministers and secretaries of state, suggested that the group itself would be the best forum for scrutinising the fiscal behaviour of member states.

The code will call for common aims in taxation policy, stabilising revenues by reversing the trend of imposing taxes on labour and switching attention to more mobile capital or pollutants.

Monti had asked group members to come to the meeting with 'blacklists' of the kinds of beggar-thy-neighbour practices which are undermining their tax bases. Each representative had to show details of the practice, how it had harmed them and at what cost.

After analysing the lists, the Commission came to the conclusion that behaviour in the area of corporate taxation was considered to be more harmful than anything else.

The complaints focus on countless tax breaks to win cross-border corporate investment, including tax benefits for establishing company coordination centres in Belgium, low corporation tax in Ireland for specific high-value manufacturing activities and exemptions for new businesses throughout the Union.

Based on these findings, Monti's staff will draft a code of conduct in time for the next meeting of the group scheduled for mid-June.

The Commissioner acknowledges that such a code will not be enough for several member states, since they will want legislative measures to cope with the haemorrhaging of potential tax revenues from savings into offshore financial centres.

“It is important to present everything as a package,” Monti told European Voice. “This is based on the idea that it will be less difficult - but not easy mind you - to get an agreement on more than one measure.”

The Commission believes this approach is the only one with any chance of winning over Luxembourg Prime Minister Jean-Claude Juncker. His Grand Duchy, with its discreet bankers and zero-rate tax on interest paid to foreigners, has an irresistible charm for many over-taxed Germans and Belgians.

This will mean a revival of an eight- year-old proposal to harmonise capital taxes, combining a common minimum rate with an obligation on banks to provide information to tax authorities.

“Looking back at our history, we can see that the approach of going from tax to tax has been fruitless,” said Belgian group member Freddy Willockx. “The whole idea was to formulate a global approach to dealing with fiscal competition, jobs and the single market.”

Monti wants to coordinate progress on the code of conduct and savings taxation with his action plan for completing the single market by 1999. Above all, this will require the establishment of a definitive regime for value added tax at a time when several member states are not even obeying either the spirit or letter of the transitional regime on the sales of cut flowers and domestic fuel.

Progress at the group was undermined by the absence of key players in the debate: the French and British ministers. French Budget Minister Alain Lamassoure is fighting an election campaign, while a decision has not yet been taken on who the UK's new representative will be. But it is likely to be either Dawn Primarolo or Helen Liddell (both treasury ministers).