"We are in deadlock," Finnish Finance Minister Sauli Niinisto said on Monday after a meeting of European finance ministers.

The plan - to require countries to levy a tax on foreign holders of bank accounts, bond and stock investments - has been supported by most EU members as a means of preventing tax evasion.

But UK Treasury Paymaster General Dawn Primarolo said that there were "fundamental flaws" in the proposed directive.

She was supported by Luxembourg's Finance Minister Jean-Claude Juncker, whose country is also seen as a tax haven by other member states.

Germany, many of whose citizens put their funds in Luxembourg, has been the main advocate of the measures.

Germany's Finance Minister Hans Eichel has indicated that other members could not accept the UK's proposal that all bond holdings above 40,000 euros (£25,000) should be exempt from the withholding tax, and that it might be time to abandon hope of a comprehensive agreement.

Taxing business

The closer links between Europe's financial markets, since the introduction of the single currency, have been cited as reasons for further tax co-ordination.

Gordon Brown: determined to resist the withholding tax

The EU is considering plans to integrate pensions, banking and investment services across Europe.

It has also set up two working parties to review company taxation across Europe.

The idea is to look at special tax breaks used by some countries to attract investment. So far more than 200 such measures have been identified.

Although the UK has the lowest rate of corporate taxation in Europe - at 30% - the real impact of higher rates in other countries is reduced by exemptions for investment and different rules on how to count profits.

Bringing the euro to life

Ministers are expected to agree on details for the switchover to the euro, promising to ensure that by mid-January 2002 the majority of cash transactions can be carried out in euro notes or coins.

They are likely to shorten the period at the start of 2002 in which there would be dual circulation of national currencies and euros to two months from the legally permitted six.

To make distribution easier, some banks and retailers may be given euro notes and coins notes before 1 January 2002, though these will not be for public circulation.

Coins will also be made available to handicapped and other vulnerable groups in the last two weeks of December 2001 to help them get used to the new currency, although they will not be legal tender before 1 January.