Germany Being Forced To Back Down On 'Eco-Taxes'

by Ulrika Lomas, Tax-News.com, Brussels

29 November 2001

Germany is under pressure from Brussels to minimise exemptions for its energy-intensive industries from eco-taxes due to be levied under EU legislation. The EU had approved 80% exemptions for a limited period to 31 March 2002 for sectors such as mining, iron and steel, and chemicals, but Economics Minister Werner Müller last year applied to the EU Competition Commission for approval of a ten-year extension of the current tax relief arrangements.

EU Competition Commissioner Mario Monti sees the exemptions as constituting an unacceptable government subsidy and has made it clear to the German government that they will have to be scaled back, something the government will be reluctant to do in an election year: abolishing the tax relief would add a total DM5 billion to the annual tax burden on German industry.

On Wednesday, Finance Minister Hans Eichel held a private meeting with Mario Monti at a restaurant in Brussels at which he appears to have offered to impose a two-year limit on the current arrangements. Monti is said to have responded positively in principle to Eichel's proposal. But it was stressed that the Commission's legal experts would have to study its ramifications before it could start to form the basis of any agreement.

The EU's legal framework governing this kind of relief from ecological levies actually provides the Commission with little room for manoeuvre. The relief can be approved for a maximum of five years, provided that it is phased out over this period. Alternatively, the tax relief can be extended, provided that it is so slight that the companies end up bearing the lion's share of the tax burden, and that they make some contribution towards the attainment of the government's ecological targets.

Currently, German industry is supposedly imposing voluntary controls in order to help the government achieve its greenhouse gas emission targets. But a spokesman for Monti said that under the EU laws, this agreement would not be considered sufficient to justify industry's relief from eco-taxes. He said the present Germany arrangement lacked "clear sanction instruments".

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