EU ministers make little headway on tax dodgers (2nd Roundup)

May 14, 2008, 15:14 GMT

Brussels - European Union finance ministers failed Wednesday to make much headway in their fight against tax dodgers, rejecting a pilot project to combat Value-Added Tax (VAT) fraud and deferring plans to crack down on fiscal havens.

VAT fraud is estimated to cost EU governments more than 100 billion euros (1.55 billion dollars) in lost revenues as businesses exploit loopholes in the bloc's single market.

However, a proposal by Austria for a pilot project which would see the tax being paid by the recipient of a good or service, rather than by its foreign supplier - the so-called reverse charge mechanism - failed to gather enough support within the council of ministers.

While ministers also failed to reach an agreement on another radical proposal, Laslo Kovacs, the European Commissioner in charge of the tax portfolio, said he would be presenting 10 conventional measures with a similar aim in mind during the last three months of the year.

Ministers also had a quick look at a preliminary report by the European Commission on its Savings Directive, which since 2005 requires most member states to share tax information.

A growing number of countries want to extend the scope of the directive in the aftermath of a European-wide scandal involving scores of wealthy citizens setting up foundations to stash their savings in tax havens such as Liechtenstein.

But progress on this front was stalled by Luxembourg and Austria, which jealously guards its banking secrecy rules.

In the end, ministers gave the EU executive until September 30th to present a final report on the directive, but did not impose a strict deadline for it to come up with new proposals.

'You have to bear in mind that on taxation, the unanimity rule applies. That is why these discussions seem so long. It is very difficult to reach unanimity in such complex areas as taxation,' said Andrej Bajuk, the Slovenian finance minister whose country holds the rotating presidency of the EU.

Ministers attending the EU's so-called Ecofin Council also vowed to keep their budget deficits in check in spite of the economic slowdown and to fight inflation, which at well over 3 per cent has emerged as one of their chief concerns.

On Tuesday, a meeting restricted to officials from the 15 members of the eurozone turned against what they called the 'scandalous' salaries and unjustified corporate bonuses and golden handshakes that are paid out to some of the continent's top managers.

Luxembourg Prime Minister Jean-Claude Juncker, who chairs the regular euro area meetings, said ministers were asked to consider changes to their tax systems in order to limit what he called a 'social scourge'. One solution being voiced was to stop making such handsome payouts tax deductible.

'We are aware of the huge gap between our continued appeal for wage restraint and the continued existence of these excesses, particularly in respect to golden handshakes, and we are examining fiscal instruments that may be brought into play to combat such excesses,' Juncker said late Tuesday.

'It is no longer acceptable to have situations whereby certain top managers have excessive salaries and also benefit from golden parachutes, payments which have no relationship to their performance,' he said.

The rest of the EU's finance ministers held an informal discussion on the issue during lunch Wednesday.

Giulio Tremonti, who returned to Brussels as Italy's finance minister after Silvio Berlusconi's election in the country's April general election, noted that discussions of this kind on corporate bonuses would have been 'unthinkable' four or five years ago.

'The world has radically changed,' he said.