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Tuesday, 5 June, 2001, 22:21 GMT 23:21 UK
Progress on EU energy tax
Electricity pylon
Liberalising the energy market and agreeing EU tax rates will go hand-in-hand
EU finance ministers have bowed to Spanish concerns on energy tax, according to sources close to the monthly Ecofin meeting.

The sources said ministers agreed to link moves to liberalise the EU energy market to the introduction of a framework for energy tax.

Many EU members hope that energy taxation will be the key both to a better environment and a less-restricted energy market.

But progress on this issue has been slow, as France is reluctant to open up its energy sector to competition.

'Fingers pointing at France'

Sources at the Ecofin meeting in Luxembourg said most ministers demanded France liberalise its energy market more.

While Italy reiterated that France's state-owned energy monopolies cannot expect to take over companies elsewhere if its own market remains protected.

"The fingers were all pointing in one direction," one delegate said describing the pressure French minister Laurent Fabius came under from the 14 other countries.

A full solution to the issue is unlikely to arrive before the EU's next summit in Gothenburg in the middle of June.

Tax evasion

Ministers also reached an agreement on how to implement a recent EU compromise on the "withholding tax", where savings are taxed at source, making it more difficult for tax dodgers to hide any illegal income.

The EU hopes to persuade foreign governments - especially Switzerland, the United States, Liechtenstein, Monaco, Andorra and San Marino - to exchange information about income from investments held there by EU residents.

The European Commission wants the right to talk to these governments directly on behalf of the European Union.

However, The UK, which successfully vetoed an EU-wide withholding tax and forced through an information sharing scheme instead, has tried to thwart this ambition.

Instead, it wants to see a group formed by member governments to do the talking.

Argument settled

The argument was apparently settled in the Commission's favour on Tuesday.

Finance ministers agreed that the Commission should carry out the concrete negotiations on the basis of a mandate from ministers to be settled in October.

And they set up a high level group of national and Commission officials to speed up preparations for this and on other aspects of the EU's overall tax package, which also includes a code of conduct against unfair business incentives.

Banking secrecy

UK Chancellor of the Exchequer Gordon Brown stressed that national officials within the EU working group will still be able to restrain the Commission from any unwelcome initiatives.

He also denied that contacts with Switzerland and others so far have shown they are not ready to drop banking secrecy and will only accept a 'withholding' tax system.

He said the exchange of information system which the UK successfully held out for inside the EU will "sooner or later become the way forward" internationally.

He said: "It is far less bureaucratic and open way."

Despite the "historical reasons" making certain countries prefer the withholding tax, he said "old fashioned banking secrecy" which led to tax abuses "is a world that people will find increasingly hard to defend," he said.

Mr Brown said he had reported to Ecofin the results of his own contacts with the UK's dependencies or associated territories or Commonwealth countries.

The UK had held bilateral talks with the Isle of Man, Jersey and Guernsey and is doing so with some Caribbean overseas territories, he said.

"A great deal of progress has been made. We are seeking a level playing field, not to hold on to old systems," he said.

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04 Jun 01 | Business
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