Select Committee on European Communities Seventeenth Report


6.  COMMISSION'S FIRST ANNUAL REPORT ON THE CODE OF CONDUCT (HARMFUL TAX COMPETITIONS) (COM (98) 595)

Letter from Dawn Primarolo MP, Financial Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  I enclose an explanatory memorandum on the above Commission Communication (not printed).

  This report will be considered as part of the ECOFIN 1 December discussion of progress on the Code of Conduct, savings tax, interest and royalties and state aid.

  The document has only just been published (25 November). If there were more time between publication of the document and ECOFIN, we would of course wish to have had the benefit of your Committee's consideration before the Council meeting. But I regret that on this occasion it will not be possible. We have not yet received the text under Council cover, so I am arranging for an advance copy to be deposited in Parliament today. I enclose a copy of the text for your ease of reference.

27 November 1998

Letter from Lord Tordoff, Chairman of the Committee, to Dawn Primarolo MP, Financial Secretary to the Treasury

  Thank you for your letter of 27 November enclosing an advance copy of this document, which Sub-Committee A considered at its meeting on 15 December. It decided to hold this document scrutiny because it is relevant to the forthcoming enquiry on the co-ordination of tax policy, about which we shall be in touch with you separately. We do of course understand that you will need to participate in the on-going discussions on these subjects.

  Meanwhile, it would be helpful to have a copy of the interim report which we understand that your Code of Conduct Group made to the Council on 1 December, as well as any comments you may wish to give on that meeting.

15 December 1998

Letter from Dawn Primarolo MP, Paymaster General, HM Treasury, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 15 December concerning the Commission's First Annual Report on the Code of Conduct for Business Taxation and progress Report on taxation of income from savings and interest and royalty payments.

  You asked specifically to have a copy of the interim report which was presented to the Ecofin Council on 1 December. I should explain that because the Ecofin Council has agreed that the work of the Group is confidential I am not at liberty to make the report available to you nor to divulge details concerning other Member States. I have informed the House of Commons on 17 December 1998 of the UK measures which are on the initial list for discussion by the group and I attach a copy of the Official Report for your reference (not printed).

15 February 1999

Letter from Lord Tordoff, Chairman of the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury

  Thank you for you letter of 15 February, replying to mine of 15 December, in which I asked for a copy of the Interim Report which your Code of Conduct Group had made to the Ecofin Council on 1 December. You say that you are not able to provide this because the work of the Group is confidential. Sub-Committee A has expressed great concern that this agreement among Member States' governments to carry on negotiations over a long period in secret denies national parliaments the possibility of scrutinising what is happening.

  While we quite understand that you personally are in a difficult position if ministers from other countries insist on their input remaining confidential, we trust that you will use your best endeavours to overcome this lack of transparency. It is clearly outside the spirit of the Amsterdam Treaty and makes a mockery of the professed intention of the European Council to bring Europe closer to the citizen. We will await with interest further developments and it is of course likely that Sub-Committee A will raise the matter when it takes evidence on its new enquiry.

9 March 1999

Letter from Lord Tordoff, Chairman of the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury

  You and I have been in correspondence about this document (most recently in my letter of 9 March to you, replying to yours of 15 February). As you will be aware, we are holding the document under scrutiny in connection with Sub-Committee A's current enquiry into taxes in the EU, and we are particularly concerned about the lack of transparency in the operation of the group.

  It is therefore unfortunate that your letter of 29 March to the Chairman of the European Scrutiny Committee in the House of Commons on this subject was apparently not copied to me. I would remind you that there is a long-standing convention that correspondence between Ministers and the Chairman of the scrutiny committee in one House should be copied to the Chairman and Clerk of the other, and I should be grateful if you could ensure that this convention is observed in the future.

4 May 1999

Letter from Dawn Primarolo MP, Paymaster General, HM Treasury, to Lord Tordoff, Chairman of the Committee

  I am writing in response to the questions raised in the Sixteenth Report of the House of Commons Scrutiny Committee on European Legislation and Jimmy Hood's letter of 26 May, and also to bring you up to date more generally in relation to several of the matters considered in relation to the Report.

  With regard to the draft Directive on the taxation of savings, I can reaffirm that we will keep the Committee informed of progress. As you may know at ECOFIN on 25 May no decisions were taken but Council Conclusions on the Directive were agreed. These Conclusions explicitly recognise that the current treatment of international bonds might give rise to problems regarding the competitiveness of EU financial markets. The United Kingdom will continue the discussions with our European partners to see if we can find a solution to these problems. We are still talking to the City of London about this. At ECOFIN, the Chancellor noted that the Government expected to put forward a paper for discussion on the issue in June.

  I should also mention that the Commons Treasury Committee, as part of its enquiry into "Tax Competition and Co-ordination" have asked for the Government's views on how to distinguish "retail" from "wholesale" in measuring capital flows. As the Chancellor made clear on 25 May, other Member States and the Commission fully recognise our concerns to protect the legitimate interests of European financial markets. This raises legal and technical issues of great complexity and we are doing a lot of detailed work on these in close co-operation with the City.

  Turning to the Code of Conduct, I was asked to endeavour to secure publication of the Working Group's second interim report to the Council. When the Ecofin Council established the Code of Conduct Group it agreed that the work should be confidential. It remains the case that members of the Group are bound by this.

  As regards its future work, the Group is required to provide a report to Ecofin on the outcome of the review process by the end of this year. The Code is a political agreement. It will be a matter for Member States to amend their own laws and practices with a view to eliminating any harmful measures taking into account the Council's discussions.

  I was also asked how the Community's State air rules will affect that decision-making process. The work of the Group is complementary to the State aids rules and provisions. The Commission's Communication confirms that the State aids provisions of the Treaty will contribute through their own mechanism to the general objective of tackling harmful tax competition.

  I should add that the Commons Treasury Committee have asked how the existence of the Code has affected the Government's conduct of UK tax policy. The United Kingdom will respect the principles underlying the Code when determining future policy.

  I was asked by Jimmy Hood to clarify whether it is the Commission that determines that a particular measure in a Member State is a State aid and, if so, whether it falls foul of the State aid rules. It is indeed the Commission which has the power under the EC Treaty to assess whether a tax measure is a State aid within the meaning of the Treaty. The Commission alone has competence, subject to the jurisdiction of the ECJ, to determine whether a State aid can be approved under one of the derogations in the Treaty as being compatible with the common market.

  Finally, I acknowledge receipt of your letter of 4 May about the Code, in which you pointed at that my letter of 29 March to the Chair of the Commons Scrutiny Committee was not copied to you or Tom Mohan. I apologise for this oversight.

22 June 1999

Letter from Lord Tordoff, Chairman of the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury

  Thank you for your letter of 22 June covering some outstanding issues on harmful tax competition. Lord Grenfell has also asked me to thank you for your similar letter of the same date to him. Most of the points which you cover were of course raised when Sub-Committee A took oral evidence from you on 22 June, and you will appreciate from that session that we still have concerns about some of the issues.

29 June 1999


 
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