Call for minimum EU tax on savings

French and German finance ministers yesterday called for an EU-wide minimum tax on financial investments, a move which is fiercely opposed by the UK Government.

Jean Arthuis, the French finance minister, said the EU should agree a code of good conduct to eliminate the risk of unfair competition between member states for tax revenues. Speaking after bilateral talks in Lyon between the French and German finance ministers and central bankers, Mr Arthuis said: "We are determined to put active pressure on the European Commission to have this code of good conduct in place rapidly. We cannot tolerate these forms of unfair competition. It is the future of the European Union which is at stake."

A new EU taxation policy group, charged with exploring possibilities for co-ordination of tax policy, met on Tuesday. Tax competition was the main topic of discussion. A spokesman for Commissioner Mario Monti, chairman of the group, said: "We are not at this stage considering legislation. We hope instead to achieve a political consensus over tax co-ordination in a series of areas."

The French, German and Belgian governments are concerned about the differences between taxes on capital in EU countries. Germany in particular fears that savers are slipping across the border to set up savings accounts in Luxembourg which, like the UK, has no withholding tax on interest from savings. Another fear is that tax competition will push capital and corporation taxes down across Europe, forcing member states to raise taxes on employment instead, thereby threatening jobs.

But the chances of EU-wide measures being introduced to tackle the problem look slim. Tax policy is not covered by qualified majority voting, so EU proposals can be vetoed by any country.

A spokesman for the Treasury said: "We are strongly opposed to a minimum withholding tax, and to anything which would be a threat to London as a financial centre. If Germany has a problem with tax competition from Luxembourg that is for them to sort out themselves."

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