[A-List] EU integration struggles: taxation

[Michael Keaney]

France and Germany call for EU tax accord
By George Parker in Brussels
Financial Times: December 2 2002

France and Germany have agreed to launch a push to harmonise European Union
tax policies, challenging the UK government's insistence that taxation must
remain subject to national veto.

A joint Franco-German paper prepared for the convention on the future of
Europe will propose moves to harmonise corporation tax and value added tax
to improve the single market. It is the latest in a series of Paris-Berlin
initiatives troubling London.

The plan will be resisted fiercely by Tony Blair, prime minister, who
supports the idea of "tax competition".

Mr Blair has watched with growing anxiety as France and Germany have begun
to establish a leading role in the debate over Europe's future.

The tax question will be addressed in a joint Franco-German paper on
economic governance, and follows rapidly after separate documents on defence
and justice and home affairs. But the most significant paper could come in
January, when Paris and Berlin hope to unveil an ambitious joint document on
how the European Union should be run, to coincide with the 40th anniversary
of the French-German Elysée treaty.

Although senior French diplomats say the two sides are still some distance
apart on the key question of whether there should be a powerful EU
president, intensive work is under way to try to reach a compromise. The tax
issue is likely to prove highly contentious as Valery Giscard d'Estaing's
convention on the future of Europe moves into its final phase in the new
year.

France and Germany believe that the single market is being distorted by
"unfair tax competition", with some countries, such as Ireland, setting very
low levels of corporation tax.

Estonia, one of 10 countries hoping to join the EU in 2004, also attempts to
woo inward investment with low company taxes.

A working party in the Giscard d'Estaing convention said a majority was in
favour of removing the national veto in areas of taxation that related to
possible distortions in the single market.

"The objective of these changes should not be the establishment of unified
taxes, nor should it concern personal and property taxation," the report
says.

But it calls for minimum standards and some harmonisation of rates in areas
such as corporation tax and value added tax.

France and Germany are expected to endorse that view, leaving Britain,
Ireland and possibly a handful of eastern European countries fighting to
save the veto.

French and German diplomats said they expected to produce their economic
governance paper before Christmas.