Britain and Germany yesterday moved to defuse a rancorous public dispute over corporate taxation that threatened to overshadow this weekend's Vienna EU summit.
The move was welcomed by the Minister for Finance, Mr McCreevy, who said the joint declaration was a positive contribution to the tax debate.
A joint statement, issued by Downing Street following a phone conversation yesterday morning between the British Prime Minister Mr Tony Blair and the German Chancellor Mr Gerhard Shroder commits both governments to working together to avoid "harmful tax competition" but insists that they "do not favour a unified European system of corporate taxation".
Calls for corporate tax harmonisation from the German Finance Minister Mr Oskar Lafontaine, backed by his Chancellor and the French Finance Minister Mr Dominique Strauss-Kahn, had turned a low-key debate on economic co-ordination in the single currency era into a bitter war of words fuelled by tabloid hysteria.
Mr Strauss-Kahn said on Sunday that tax harmonisation would be a European Union priority for early 1999. "Fiscal harmonisation is one of the priority projects, on business taxes as well as on savings," he said.
Both Britain and Ireland made it clear that they were prepared to veto any attempt at harmonisation but confrontation and talk of vetoes are not supposed to be part of the British New Labour European profile, not least because of the challenge of persuading voters in a couple of years to back entry of Britain into the single currency.
Nor does it play well with Ireland's appeal for EU "solidarity" through continued structural funding.
On Tuesday there were signs that Bonn was getting the message that nobody's interests were being served by the tone of the debate and Mr Lafontaine changed his language, referring, "at the request of our British friends", to the more politically correct "tax co-ordination", instead of harmonisation.
Yesterday's attempt to calm the debate should take some steam out of the summit, but nearly went amiss when Bonn initially denied that it was party to the joint text.
Within hours, however, to the relief of London, both sides were singing from the same hymn-sheet. Nevertheless, the text steered clear of the contentious issue of an EU minimum DIRT on expatriate savings which financiers in London fear might reduce the City's competitive edge as an international financial services' hub.
It also failed to offer any sign of agreement on the thorny issue of majority voting on tax, an issue likely to emerge in the context of treaty reforms to be debated next year.
The joint statement commits the two governments to supporting "strong action to combat unfair tax competition in line with the work of the Code of Conduct Group".
The group deals with sectoral or geographical discrimination within states and not between them.
"We do not favour a unified European system of corporate taxation," the statement said. "We agree that further consideration could be given to how harmful tax competition in the area of corporate taxation might be avoided. But we will not support measures leading to a higher tax burden and jeopardising competitiveness and jobs in the EU.
"At no stage have we considered measures to harmonise personal income tax. This is not necessary for the effective functioning of the single market and is inconsistent with the principle of subsidiarity."
The statement concludes by noting a willingness to set minimum rates for indirect taxes on tobacco, alcohol and fuel, and to co-operate in such areas as energy taxes, as long as it does not harm competitiveness.
