France and Germany are to call jointly for an end to the national veto on European Union tax policy, an area that Ireland and Britain regard as sacrosanct.

A joint paper on the future of Europe will propose moves to harmonise corporation tax and value added tax to improve the working of the single market, and is the latest in a series of Paris-Berlin initiatives to cause anxiety in Dublin and London.

The plan will be resisted fiercely by British prime minister, Mr Tony Blair, who supports the idea of "tax competition" and believes that all tax policy should be subject to national veto. Ireland is also expected to object.

Britain has watched with growing anxiety as France and Germany finally mobilise themselves to play a dominant 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 separate papers 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 paper on how Europe should be governed.

The tax issue is likely to prove highly contentious as Mr 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 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.

The economic governance 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. - (Financial Times Service)