Brussels, 17/01/2003 (Agence Europe) - The first Ecofin Council to meet under Greek Presidency, on Tuesday 21 January, is likely to reach political agreements on proposals relating to energy taxation and administrative cooperation on value added tax. Despite the fact that such breakthroughs are expected, the attention of observers will be focused on the work that ministers are to devote to issues related to respect of the Stability Pact and savings tax. Regarding the former, the Council is expected to show proof of flexibility toward Germany - under the effect of a procedure for excessive deficit - and Italy - which could benefit from more time to present structural measures for cutting back its public spending. France is likely to be the subject of a preliminary warning given its probable excessive deficit in 2003. Regarding savings tax, Tuesday's Ecofin Council appears as a last chance meeting, and the Presidency will seek to bring the situation out of deadlock by presenting a compromise draft.
Given the deadlock that could encourage the Commission, in the event of further failure of negotiation on Tuesday, to withdraw its proposals on savings tax, the Greek Presidency has forwarded to Member States a draft compromise providing for the three Member States that are reticent about abandoning their rules regarding the banking secret (Luxembourg, Austria and Belgium), to maintain such rules during an unspecified time. On the other hand, from 2004 on, when the twelve other Member States introduce an automatic system for exchanging information on savings income by EU residents, these three countries would have to impose withholding on savings income at rates that are higher than those imposed by the Fifteen in 2000: 15/20% during three years, 25% the next two years and 35% after that. The Presidency's proposal stresses that "exchange of information on as wide a basis as possible is to be the ultimate objective of the European Union". This implies determining a firm date for the transition by Luxembourg, Austria and Belgium to the common information exchange regime. On this point, the Presidency proposes that these three Member State should change to the common regime as soon as Switzerland, the United States, Monaco, Liechtenstein, Andorra and Saint Marin have reached agreement with the EU on communicating information on savings income of residents (until now, it had been foreseen that Luxembourg, Austria and Belgium would share their information with their EU partners after a seven-year transition period expiring in 2011). It remains to be seen how things develop on Tuesday. On the question of withholding, the Swiss have announced they would apply a withholding rate of 35% if Luxembourg and Austria do the same, but these two Member States, especially Luxembourg, are unwilling to have such a high rate. The United Kingdom, on the other hand, might be reluctant to back a deal that would entail tax rates lower than 35% for Luxembourg, Austria and Belgium. German Finance Minister Hans Eichel was to meet Chancellor of the Exchequer Gordon Brown on Monday, the eve of the Council, to discuss this issue. On the Greek Presidency side, it is hoped that a political agreement will be reached on Tuesday, an agreement that would allow formal adoption of provisions before the Spring Summit to be held in March.
In the field of taxation, the Council will also tackle the code of conduct for corporate taxation and is expected to confirm its agreement on all outstanding issues relating to the proposal of directive aimed at establishing a common tax system applicable to the payment of interest and royalties. Above all, however, ministers are expected to reach political agreements on energy taxation and administrative cooperation in the field of VAT. Concerning the first issue, there were a number of sensitive questions still to be settled after the Ecofin Council on 3 December last, in particular: - the possibility of setting national levels below the new minimum levels of taxation; - arrangements for the use of professional diesel oil; - and the treatment of energy used in agricultural, horticultural or piscicultural works, and in forestry. According to the compromise text to be examined by the ministers, the Member States may apply a level of taxation down to zero to energy products and electricity when used by energy-intensive business as defined by the draft directive. Concerning the arrangements for the use of diesel oil, the compromise suggests a minimum rate of 302 per 1000 l. From 1 January 2010 but not later than 1 January 2012, the minimum rate should be set at 330/1000 l, and the Council would decide upon the minimum levels for a further period beginning on 1 January 2003. Member States may differentiate between commercial and non-commercial use of diesel oil, provided that the new Community minimum levels are observed and the rate for commercial diesel does not pass below the national level of taxation in force on January 2003.
Finally, it being a question of energy products used for farming and related work, the compromise also provides for Member States being able to apply a level of tax going to zero. The Council is, moreover, expected to reach a political agreement on the amended draft regulation on administrative co-operation in the field of value added tax and on a draft directive relating to mutual assistance by the relevant authorities of Member States in the field of direct and indirect tax.
As for implementing the Stability and Growth Pact, the Council will examine the updated stability programmes of a first group of six countries - Germany, Italy, France, Greece, Finland and Sweden - in the light of recommendations the European Commission adopted on 8 January (see EUROPE of 9 January, pages 7 to 9). Regarding the first two countries, the preparatory committee of the Ecofin Council has introduced flexibility in relation to the position of the European Commission. Thus: (a) Germany, while subjected to a procedure for "excessive deficit", should be authorised by the Ecofin Council to exceed the 3% ceiling of the deficit in 2003, if growth is below 5% (which should be the case). The Federal Statistical Office announced on Thursday that the German public deficit in 2002 would be 3.7% of GDP; (b) Italy should benefit from a three month respite, if the Council decides not to ask for the presentation by March at the latest, as the European Commission was asking, structural measures in spending matters replacing the exceptional measures so far envisaged. The Council should, however, draw attention to Italy's excessive level of public debt. As for France, it is to be the subject or a preliminary warning on the possible appearance of an excessive deficit in 2003; the French Government, however, is the only one not to have subscribed to the commitment to return to a budgetary balance by 2006.
Monday evening, the Council will be preceded by the traditional meeting of the Eurogoup. Ministers will discuss the economic situation, developments in budgetary policy and the Commission's communication on co-ordinating economic policies. The Eurgroup will discuss issues linked to the euro in the framework of the work of the European Convention.