In fact, ECOFIN was due to sign off on a major tax package which has been in negotiation for five years, of which the Savings Tax rules are just a part. The two other components are the Code of Conduct for business taxation, and the Commission's March 1998 proposal for a Council Directive to eliminate withholding taxes on payments of interest and royalties made between associated companies of different Member States.

Taxation Commissioner Frits Bolkestein was due to report to the Council on the discussions that have taken place with Switzerland, Liechtenstein, Monaco, Andorra and San Marino since the Council meeting on 18th February which agreed a 'variable geometry' solution to the savings tax impasse, with some EU member states allowed to impose a withholding tax on savings returns while the majority of countries apply an information-sharing regime.

The EU deal, says STEP, means that Switzerland and the US are excused from effective exchange of information on EU resident tax matters. This is despite the fact that OECD continues to insist that their competitors, smaller jurisdictions excluded from OECD membership, should still do so.

Donald Johnston, OECD Secretary General, wrote privately to the heads of EU Governments in January saying Europe had endangered a global drive to crack down on criminal tax cheats, by excusing three member states from exchange of information. However the OECD continues publicly to insist that non-OECD governments exchange information, despite the harm this will do to their economies because their competitors are excused, says STEP.

G-7 Finance Ministers and Central Bank Governors meeting in Paris in February also insisted on the need for a 'level playing field': 'We urge all OECD countries to implement the standards set out in the OECD's 2000 report on access to bank information and to ensure effective exchange of information for all tax purposes. A level playing field is crucial to avoid tax evasion shifting from those countries that engage in exchange of information to those that do not.'

STEP spokesman Richard Hay of lawyers Stikeman Elliott said "International Financial centres gave commitments to tax information exchange following OECD assurances that common standards would apply to all. The EU Savings Tax Directive now proposes that some important OECD members delay or are excused compliance with tax information exchange. Smaller states will seek to withdraw commitments information exchange unless the OECD can ensure its own members are bound by the standards it seeks to impose on others."

The two other parts of the EU's tax package are not quite so controversial, but still very important.

The Code of Conduct rules single out 66 'harmful tax measures' and the Council was due to decide whether the proposed revised or replacement measures for the 66 harmful regimes in Member States and their dependencies are 'adequate to achieve rollback'. The Member States and their dependencies, says the EU, have made formal commitments to bring all these measures in line with the Code principles.

The Code of Conduct for business taxation requires Member States to refrain from introducing any new harmful tax measures ("standstill") and amend any laws or practices that are deemed to be harmful in respect of the principles of the Code ("rollback"). Finance Ministers established the Code of Conduct Group (Business Taxation) at a Council meeting on 9 March 1998, under the chairmanship of UK Paymaster-General Dawn Primarolo, to assess the tax measures that may fall within the scope of the Code of Conduct for business taxation. The Group in a report of November 1999 identified 66 tax measures with harmful features (40 in EU Member States, 3 in Gibraltar and 23 in dependent or associated territories). Work has continued since in the Code Group focusing notably on monitoring the standstill and rollback process.

As usual in the EU, what has actually been achieved by the Code of Conduct Committee is a fudge, with some important measures allowed to slip through the net as the price for assorted deals on other subjects. Belgium, for instance, has been allowed to retain its 'headquarters' tax regime until 2010 in return for agreeing to information-sharing. In the EU 'until 2010' is almost as good as 'for ever'.

The measures to tidy up taxation of interest and royalty payments between linked companies across member-state boundaries were agreed last November and effectively eliminate withholding taxes on payments of interest and royalties in most situations.