Britain objects to harmonised EU tax rate

Moves to harmonise corporate tax systems across the European Union are to be resuscitated, despite the objections of Britain and Ireland.

Moves to harmonise corporate tax systems across the European Union are to be resuscitated, despite the objections of Britain and Ireland.

EU finance ministers agreed overwhelmingly at the weekend to set up a group to consider how to unify the way firms pay their taxes. Although that would not immediately result in a unified tax rate, the UK and Ireland - which made plain their opposition - fear that could be the ultimate objective.

The row at Saturday's informal meeting of EU finance ministers has echoes of a fierce dispute in 1998, when France and Germany led the charge towards tax harmonisation.

That push was seen off, in part, by Gordon Brown, Britain's Chancellor, who repeated this weekend his rejection of EU interference in domestic tax issues.

Mr Brown said he "will not support any move toward harmonisation of corporate tax," adding: "There is no need for it and it is certainly not a priority. Economic reform is a priority." Mr Brown was backed by Ireland, Slovenia, Malta and Estonia, and the five critics of the plan are thought unlikely to take part in the working group.

Because all EU nations have a veto on tax issues, no system could be imposed on the UK. But a group of at least eight countries could band together to agree their own rules as part of an EU inner core. In time, they might then apply pressure to those outside to give up their opposition.

Despite pressure from France and Belgium, the issue of harmonising tax rates will not be covered by the study. The European Commissioner responsible, Frits Bolkestein, who is against harmonising rates, says he simply wants common rules for determining taxable profits to make it easier for companies operating in more than one EU country to assess their liabilities. Germany's Finance Minister, Hans Eichel, took a tactical approach. He said it is "crucial to get a common tax base on the amount of money to be taxed," but added that "talking about tax rates without that doesn't make sense."

However, France and Belgium received scant support for their calls to cut EU grants to eastern European nations that undercut older member states by offering low corporate tax rates. Austria's Finance Minister, Karl-Heinz Grasser, said he saw "no chance for that to be realised," and the idea enraged some of the countries that joined the EU in May. The Hungarian Finance Minister, Tibor Draskovics, said it was "very important for us to catch up with the rest of Europe," adding: "They have to accept our policies, for example, lower corporate tax rates."

Meanwhile, eurozone finance ministers reached a broad consensus on moves to relax the strict rules in the Stability and Growth Pact. But tension arose between the ministers and the European Central Bank.

The finance ministers stepped back from endorsing a European Commission proposal to loosen one aspect of the pact's rules governing when a country would face penalties for breaking the 3 per cent cap on budget deficits. Their statement made no mention of a Commission proposal to widen the definition of "exceptional circumstances" under which the ceiling could be breached.

The European Central Bank president, Jean-Claude Trichet, said he did not agree with moves to loosen the description of 'exceptional circumstances' and added: "Let's improve implementation, let's not change the wording of the regulation."

There was also friction over the eurozone's decision to appoint the Luxembourg Prime Minister and Finance Minister, Jean-Claude Juncker, as its chairman for two years. M. Trichet insisted that the title of "Mr Euro" belongs to him not Mr Juncker.