Diplomatic frustration over British obstruction of the EU savings taxation directive boiled over last night when the Finnish EU Presidency criticised the UK for refusing to negotiate.
Prospects of reaching an agreement on the directive and a package of other tax measures at the Helsinki summit next month now appear bleak, as Britain continued to insist at a meeting yesterday of finance ministers that it must have exemptions included for its $3 trillion Eurobond market. London fears that the market would simply transfer to New York.
The Finnish president of the council, Mr Sauli Niinisto, said he would be prepared to schedule an additional ministerial meeting to unblock the issue if he got a signal from London that it was willing to move. "There will be no such signal," a senior British official said.
The directive, a response to the haemorrhaging effect of Luxembourg's liberal banking and tax regime on the German tax base, would set a minimum retention tax level on interest on savings of non-nationals or require member-states to notify the authorities in depositors' home countries.
But the work of a parallel group due to report on damaging corporate tax regimes is close to conclusion. The group of senior officials, under the British Treasury Minister, Ms Dawn Primarola, will cite some 60 regimes as being in breach of the EU code of conduct on corporate taxation, including some five Irish regimes.
The code requires member-states to desist from giving sectoral or geographic tax breaks to businesses by applying only a common corporation tax regime. Ireland's manufacturing export regime and that in the IFSC are thus cited, among others, by the draft report, although the Minister for Finance, Mr McCreevy, is confident that the changes agreed with the Commission will meet the requirements of the code.
But the much-awaited Primarola report is likely to become entangled in the failure to reach agreement on the savings tax issue, which is seen by some member-states as part of a single tax package. Last night Mr Niinisto, said: "I don't belive we can split the package." But a senior British official said such a position was illogical as the issues were unrelated.
Ministers also yesterday confirmed a tentative agreement made at their recent Turku meeting to shorten the period during which a dual currency regime will operate following the issuing of euro notes and coins in January 2002.
Instead of a six-month transition, retailers have persuaded ministers that the period should be no longer than two months. Governments will have discretion to opt for a period between four weeks and two months.
The council agreed that to simplify the logistics of the introduction some leeway would be granted to issue the new notes and coins to banks and retail outlets ahead of January 1st, known as "frontloading", as long as they ensure that the cash will not go into circulation.
