Brown rejects common EU tax plan

THE CHANCELLOR, Gordon Brown, yesterday clashed with socialist allies including Germany's new finance minister, Oskar Lafontaine, over controversial new moves to harmonise taxes across Europe.

Mr Brown threatened to veto any attempt to coordinate tax policy along the lines of a document prepared for socialist ministers which emerged yesterday.

However, a push to coordinate taxes was endorsed by Mr Lafontaine and his french counterpart, Dominque Strauss-Kahn.

The row broke as the German finance minister also courted controversy by outlining ambitious plans to link pay rises across the continent to increases in productivity.

In sharp contrast to claims that Mr Brown had signed up to a united front on EU economic policy, the Chancellor categorically rejected further tax harmonisation. "Britain will continue to have a veto over tax measures in Europe. We will not hesitate to use that. Tax decisions will be made in Britain, not Brussels," he said.

A more detailed rejection of the plans was made in a letter written by Ed Balls, Mr Brown's special adviser, which described the plans as "totally unacceptable".

But Britain appeared to be outgunned on the issue as Mr Lafontaine said tax harmonisation would be high on the agenda when Germany takes over the presidency of the EU in January. "We will, during our presidency, push so that we have the first results," Mr Lafontaine said, pledging to eliminate "tax dumping". Germany has long complained that Ireland, for example, taxes some corporate income at a 10 per cent rate.

Mr Strauss-Kahn, said some moves for greater tax coordination would be ready next summer.

On Sunday, Mr Brown endorsed a socialist group document calling for greater coordination of economic policy, but did not specify tax harmonisation measures.

However, it emerged that a document produced for socialist ministers by Philippe Busquin, a Belgian socialist minister and chair of the European socialist group's working party on tax, went further. It argued that the burden of taxation has shifted from business to labour because of the mobility of capital.

The paper said "minimum corporate tax rates within the EU should be fixed", and added: "Direct tax coordination has to be on the agenda in order to avoid harmful tax competition.

"Diversity and competition among countries in the single market are only desire able if a framework of common rules for tax competition is established."

Formal proposals for tax harmonisation would have to be agreed unanimously by the 15 EU finance ministers.