Controversial plans for a Europe-wide tax on certain savings accounts have been shelved.

UK Chancellor Gordon Brown said the proposal for a "withholding tax" would not go ahead, while a working group considered the issue.

Germany and other countries had proposed a 20% tax on the interest on non-resident accounts.

The measure is aimed at cracking down on tax dodgers who take their money abroad.

Mr Brown will be celebrating his victory, after he campaigned hard against the tax being introduced to the UK.

He opposes the tax as he says it could threaten the UK's eurobond market and jeopardise thousands of jobs in the City of London and he wants the City to be exempt.

European Commission official Jonathan Sullivan said: "We've gone as far as we can."

The EU issued a statement implying that all EU residents should pay all tax due on their savings income.

The Portuguese presidency of the EU which begins in 22 days' time will now be faced with the issue.

The statement said the 15 EU leaders had agreed that a "high level working group will consider specifically how the principle can be implemented most effectively."

It said the group should come up with possible tax solutions by June 2000, the end of the Portuguese presidency.

Blair and Brown happy

Mr Brown said: "We are happy to agree to this as a way forward...The special position of eurobonds has got to be protected."

Prime Minister Tony Blair called the new EU plan a sensible way forward.

He said: "The council has agreed that we should carry on discussing this issue and do so in a way that allows us to deal with the genuine problem of tax evasion in such a way that does not put at risk the major international eurobond market located in the City of London."

Finnish Finance Minister Sauli Niinisto said the solution was "not a success". But he added: "the only other solution would have been to forget all about a tax package at this summit. This is just a bit better than that."

Earlier, Mr Brown said: "We're winning the argument because I think people do understand that if the effect of any measure is to chase a market out of London or out of Europe, then there is no gain to anybody,"