Tax Reform Update from Europe

Energy Tax Plan Back on European Agenda

BRUSSELS, Belgium - The idea of an European Union-wide energy tax is back on the table following a high-level meeting between member states and the European Commission on Friday.

The meeting was called by European Union (EU) taxation commissioner, Mario Monti, who hoped to break the deadlock on a draft directive proposed by the Commission last March that would, for the first time, impose EU-wide minimum rates of excise duty on most energy products.

Austria last week identified tax harmonisation as a priority for its current six-month EU presidency term that began July 1. Austria will try to broker a compromise deal in ministerial working groups in the coming months.

At Friday's meeting of the so-called "Monti group," which discusses EU tax issues, junior ministers and senior civil servants discussed three possible compromise approaches on the proposal, which are designed to address fears among the poorer member states - Spain, Portugal, Greece and Ireland - that the directive would push up inflation.

Following the discussion, sources say, Austria will hold further talks based on a proposal involving the possibility of long transition periods for certain states.

The presidency will also propose setting EU-wide minimum excise duties for gas, coal and electricity - currently not taxed in most EU countries - at zero. This would mean no immediate impact on energy prices, but would force EU countries to put systems in place so that minimum EU energy taxes could be levied in the future, a Commission official said.

Another concession that will be considered, according to a Commission source, would be to allow member states to exempt domestic household users from the taxes, aiming the measures instead at industrial and commercial energy consumers.

This concession would be especially targetted towards securing support for the plan from the UK, which indicated in Friday's meeting that taxing householders' energy use would be politically unthinkable.

Progress on the issue will be slow, not only because unanimity will be needed but also because of particular circumstances in two member states. At the meeting, Germany said any serious negotiations would have to wait until after its general election in September, and the UK said it could make no decisions on energy policy until November when a government task force publishes a report on the possible introduction of energy tax for business and industry.

A Brussels diplomat added that "significant differences" between the member states would mean issue would "almost certainly" drag on into the German Presidency, which begins in January.

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