Brown on collision course with EU over corporate tax

The Chancellor Gordon Brown was yesterday on a collision course with key European Union finance ministers, as France and Germany led a clutch of countries calling for new moves to harmonise corporate taxation.

The Chancellor Gordon Brown was yesterday on a collision course with key European Union finance ministers, as France and Germany led a clutch of countries calling for new moves to harmonise corporate taxation.

At an informal meeting of EU ministers, France and Belgium pressed for measures beyond those being suggested by the European Commission which wants to harmonise the base on which corporate taxes are levied in the 25 EU countries. The two countries said that, once this was done, corporate tax rates across the EU should be fixed within a harmonised band with maximum and minimum levels.

The UK, along with Ireland which is an ally on the issue, could veto the plan. However, under the EU's rules for "reinforced co-operation", a group of nations could band together to push for the measure.

Frits Bolkestein, the EU Commissioner for the internal market and taxation, wants to harmonise tax bases to ensure companies can compare fiscal regimes across the Continent.

But Nicolas Sarkozy, France's finance minister, said it was necessary to go further and have a band of corporate tax rates within which countries should stick to. M. Sarkozy repeated a call for Eastern European nations with extremely low corporate tax rates to be ineligible for EU structural or cohesion funds. He argued it was not acceptable "to reduce rates to zero and then to ask for structural funds".

Belgium's finance minister, Didier Reynders, said it would be "logical to try and harmonise corporate taxation, to fix minimum, maximum limits", adding: "We need to avoid the zero rate of taxation."

Paris points out that Estonia - one of 10 nations that joined the EU this year - has a zero rate of corporate taxation, provided profits are retained within its borders.

Mr Reynders outlined three steps: the harmonisation of corporate tax bases, then of rates, then a linkage to eligibility for EU aid. That position is likely to be supported by France, Germany, the Benelux countries and Portugal when the issue is debated today.

Mr Brown, who was due to meet M. Sarkozy last night, refused to comment before today's discussion. But Britain is resolutely opposed and Mr Brown fought a bitter battle against similar plans in 1998. A Treasury official said: "We believe the best way forward is effective and fair tax competition. We are not in favour of harmonisation."

On other issues Mr Brown went on the offensive, arguing that the eurozone bore much responsibility for sluggish growth in the global economy, adding: "Starting today, Europe must commit itself to radical new reforms becoming more flexible and outward-looking, creating the jobs, growth and prosperity our citizens deserve and expect."