Brussels, 20/03/2003 (Agence Europe) - The Finance Ministers of the Fifteen failed to reach agreement on taxation at Wednesday's Ecofin Council. Italy upheld its reservations on the whole of the "tax package" to put pressure on the "milk quota" dossier, while Austria opposed the compromise on taxation of energy. The Finance Ministers will be coming back to the issue on Thursday evening, during a restricted-session "informal meeting", to precede the dinner to discuss the economic consequences of war in Iraq, on the sidelines of the Summit (see above). "We were a hair's breadth from agreement", said the Council President, Nikos Christodoulakis. Commissioner Frits Bolkestein's spokesperson, Jonathan Todd, was angry that the tax package had been "taken hostage by a Member State for reasons that had nothing to do with it", despite the Council of 21 January reaching agreement on taxation of savings. He also "regretted" the fact that Austria had introduced new problems on taxation of energy, "just when we thought we could close discussions after six years of debate".
TAX PACKAGE: Taxation of savings: "All delegations but one came to a political agreement on the draft directive", stated the Presidency. Italy did keep its reservations on the "taxation of savings" directive, and on the result of negotiations with Switzerland on the latter's adoption of equivalent measures to those put in place by the Fifteen. It is also bringing pressure to bear in order to obtain concessions in milk quotas. The Italian Minister, Giulio Tremonti, asked for the 648 million euro fine imposed on some 24,000 Italian farmers for exceeding their quotas to be reduced, stressing that the dairy producers are unable to honour their debts. He wanted the Council to rule unanimously on this request, under article 88 of the Treaty (state aid). Frits Bolkestein states that article 88 does not apply to this case, and that the Ecofin Council will not be examining this question.
With the exception of Italy, all delegations recognised that the agreement drawn up with Switzerland at the beginning of the month (see EUROPE of 7 March, p.7) is a "final offer", including all matters relative to an extension of benefits under the "parent/subsidiary" and "interest and royalties" directives, allowing Switzerland to benefit from the system exempting transfers between subsidiaries of a pan-European company from tax at source. This extension is already in place with six Member States, through bilateral agreements. Spain obtained a derogation allowing it to complete negotiations underway with Switzerland on the "Parent/subsidiary" directive, and those on "interest/royalties", which have not yet begun. France and Portugal, who had initially planned to request similar derogations, apparently changed their minds.
Belgium and Germany asked the United Kingdom to present a written statement on commitments made by its dependent and associated territories, which are supposed to implement the same measures as the Fifteen, a diplomatic source indicated. The Netherlands have already presented a similar declaration.
Interest/Royalties: "All delegations but one" agreed on the draft directive. It will enter into force after a transition period of eight years for Portugal and Greece and six years for Spain, during which these countries will be able to continue to apply deduction at source on transfers between associated companies.
Code of Conduct on company taxation: "All delegations but one" approved the conclusions of the group Primarolo on dismantling 66 harmful tax measures. Belgium obtained concessions on fiscal advantages granted to the "co-ordination centres" of multi-nationals on its territory. These advantages are to be withdrawn definitively in 2010, and, according to a Commission decision, no further contracts are to be signed as of 2005. Belgium has asked for contracts expiring in 2003/2004 to be extended until 2005. The Council has undertaken to examine this request "favourably", and to "take a decision as quickly as possible" under article 88 of the Treaty allowing the Council unanimously to authorise State aid. Frits Bolkestein has not ruled out bringing the matter to the Court of Justice should the Council adopt such a decision, which he believes is in breach of the November 2000 Ecofin Council conclusions on harmful tax regimes.
TAXATION OF ENERGY: Austria opposes the compromises drawn up by the Presidency. Reopening a seemingly closed debate, it opposed at allowing companies "who are major energy consumers" to benefit from taxation rates reduced by half on energy products, just by committing to reduce their consumption. France had already opened a can of worms by asking the contrary- for companies to benefit from a total tax exemption. This request, however, appears to have been withdrawn from the debate. Italy obtained concessions of taxation on diesel, which it claimed as compensation for the disadvantage it hauliers were placed at due to the closing of the Mont-Blanc tunnels and the extension of the Ecopoint system in Austria. Italy was granted a transition period until 2005 before it has to apply a taxation rate as defined by the directive.