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2181st Council meeting - ECOFIN - Brussels, 25 May 1999

European Council - PRES/99/165   28/05/1999

Other available languages: FR DE DA ES NL IT SV PT FI EL

C/99/165

Brussels, 25 May 1999

8440/99 (Presse 165)

2181st Council meeting

- ECOFIN -

Brussels, 25 May 1999

Presidents: Mr Hans EICHEL

Minister for Finance of the Federal Republic of Germany

Mr Caio KOCH-WESER

State Secretary, Federal Ministry of Finance of Germany

CONTENTS

PARTICIPANTS

ITEMS DEBATED

For further information call 285.84.15, 285.81.11

PARTICIPANTS

The Governments of the Member States and the European Commission were represented as follows:

Belgium:

Mr Jean-Jacques VISEURMinister for Finance
Denmark:
Ms Marianne JELVED

Mr Michael DITHMER

Minister for Economic Affairs

State Secretary for Economic Affairs

Germany:
Mr Hans EICHEL

Mr Caio KOCH-WESER

Federal Minister for Finance

State Secretary, Federal Ministry of Finance

Greece:
Mr Yiannos PAPANTONIOUMinister for the National Economy and Finance
Spain:
Mr Cristóbal MONTORO MORENO

State Secretary for Economic Affairs

France:
Mr Dominique STRAUSS-KAHNMinister for Economic Affairs, Finance and Industry
Ireland:
Mr Charlie McCREEVYMinister for Finance
Italy:
Mr Giuliano AMATO

Mr Vincenzo VISCO

Minister for the Treasury, the Budget and Economic Planning

Minister for Finance

Luxembourg:
Mr Jean-Claude JUNCKER

Mr Robert GOEBBELS

Prime Minister, Minister for Finance, Minister for Labour and Employment

Minister for Economic Affairs

Netherlands:
Mr Gerrit ZALM

Mr Willem VERMEEND

Minister for Finance

State Secretary for Finance

Austria:
Mr Rudolf EDLINGERFederal Minister for Finance
Portugal:
Mr António de SOUSA FRANCO

Mr Fernando TEIXEIRA dos SANTOS

Minister for Finance

State Secretary for the Treasury and Finance

Finland:
Mr Sauli NIINISTÖ

Ms Suve-Anne SIIMES

Minister for Finance

Minister at the Ministry of Finance

Sweden:

Mr Bosse RINGHOLM

Ms Kari LOTSBERG

Minister for Finance

State Secretary for Finance

United-Kingdom:
Mr Gordon BROWN

Ms Dawn PRIMAROLO

Chancellor of the Exchequer

Paymaster General

Commission:
Mr Jacques SANTER

Mr Mario MONTI

Mr Yves-Thibault de SILGUY

Mr Karel VAN MIERT

President

Member

Member

Member

General Secretariat of the Council:
Mr Jürgen TRUMPFSecretary General
Other participants:
Mr Christian NOYER

Sir Brian UNWIN

Mr Jean LEMIERRE

Mr Henri BOGAERT

Vice-President of the European Central Bank

President of the European Investment Bank

Chairman of the Economic and Financial Committee

Chairman of the Economic Policy Committee

PREPARATION OF THE COLOGNE EUROPEAN COUNCIL

  • BROAD ECONOMIC POLICY GUIDELINES

The Council approved its report to the European Council in Cologne on 3/4 June containing the draft Broad Guidelines of the economic policy of the Member States and the Community as prepared by the Economic and Financial Committee and the Economic Policy Committee following the Council's orientation debate at its last session of 10 May 1999.

The Council expressed its satisfaction that the draft Guidelines had placed appropriate focus on both macro-economic and structural aspects and that the country specific Guidelines were formulated in a concrete and precise way; in addition, the draft Employment Pact appeared to be in line with the Guidelines.

The European Council is expected to give its political approval to the Guidelines, which will be formally adopted by the Council at a later date.

  • european employment pact

The Council, in preparation of the joint session of ECOFIN and Labour/Social Affairs of the same day, reviewed the latest draft prepared by the Presidency concerning the European Employment Pact, following the informal meeting of the Employment and Labour Market Committee on 6/7 May and the meeting of ECOFIN on 10 May.

  • REPORT ON THE SINGLE MARKET FOR FINANCIAL SERVICES

The Council agreed to the following Conclusions on the Commission report on the implementation of the action plan for financial services, to be submitted to the European Council:

"The Council welcomes the initiative of the European Commission on the enhancement of the single financial market in Europe. It considers that the Commission communication should serve as the report to the European Council.

Now that the European financial market legislation based on, in particular, the concept of home country control and the European passport has largely been implemented, the Community is facing the challenge of pursuing a comprehensive strategy to deepen the single market against the background of a rapidly changing financial world. The Council stresses that this must be done by striking a balance between the interests of the market players, consumer protection and the need to maintain a reliable regulatory framework which has the capacity to ensure the stability of financial markets while adapting to new developments.

The Council regards the Commission report as an excellent basis for further progress. The Council shares in principle the range and priorities established in the Action Plan. The Council supports in principle the proposals for action made by the Commission, which should be discussed fully in the appropriate committees. The Council asks the Commission to continue its work on the basis of the discussions in the Financial Services Policy Group which will continue to provide strategic advice, to discuss cross-sectoral developments and to monitor the progress under the Action Plan. In this context the Council stresses its commitment of February 1999 to pursue its efforts to reach political agreement on the key outstanding legislative proposals for the creation of a European financial market. The Council considers that the further integration of financial markets would benefit from an adequate process addressing relevant taxation issues.

The Council invites the Commission to report on a regular basis to the Council on the progress made in this field and on the new supervisory challenges arising from the growing integration of European markets. The first report should be considered by the Ecofin Council before the end of the year."

  • PROGRESS REPORT ON REINFORCED TAX POLICY COOPERATION TO THE EUROPEAN COUNCIL

The Council approved a report to the Cologne European Council on the state of play concerning the main items under consideration in the area of tax policies :

- The Code of Conduct on business taxation,

- Taxation of savings,

- Interests and royalties,

- Energy taxation.

It is recalled that the Council in its meeting on 1 December 1997, held a wide-ranging debate on tax policies, focusing notably on the need for coordinated action at European level to tackle harmful tax competition in order to help reduce distortions in the internal market, prevent excessive losses of tax revenue and developing tax structures in a more employment-friendly way. Three areas were particularly highlighted in the conclusions of that meeting: business taxation, taxation of savings income and the issue of withholding taxes on cross-border interest and royalty payments between companies.

The Council presented a first progress report on its work in these three areas as well as in the field of energy taxation to the European Council in Vienna. This second progress report, which was requested by the European Council in its Vienna conclusions (paragraph 23), describes the further progress achieved in the work on these tax issues. The report also takes into account work carried out at today's' meeting on these four issues (see further below).

  • report on the improvements in the functioning of the international financial system

The Council endorsed a report drawn up by the Economic and Financial Committee (EFC) on the improvements of the functioning of the international financial system with a view to submitting it to the Cologne European Council. This report sets out the common EU understanding on this matter and provides a useful contribution to the ongoing discussions at international level towards the creation of a stable international monetary system, which were triggered by the financial crisis in Asia, Russia and Latin America.

Mr Lemierre, Chairman of the EFC outlined the main features of this report which covers the following issues: improved transparency and better policy making procedures; financial sector supervision; dealing with international capital flows; private sector involvement; exchange rate regimes; properly targeted and high-quality financial and technical assistance; as well as improved functioning of the Bretton Woods Institutions.

In their interventions, Ministers endorsed in particular the part of the report relating to the improved functioning of the Bretton Woods Institutions : "The EU Member States are of the opinion that reforms of the international financial and monetary system must be accomplished within the framework of the Bretton Woods institutions. They consider that the IMF must remain at the centre of the international monetary system. In a pragmatic manner the modus operandi of its institutional components and the cooperation with other institutions and fora could be improved. In particular, the effectiveness of the Fund's Interim Committee, which has political legitimacy, should be strengthened. Guiding principles in this context are accountability, legitimacy, comprehensiveness and efficiency."

The Council agreed to return to this subject in the autumn in view of the next meeting of the IMF Interim Committee.

  • DEBT INITIATIVE FOR HEAVILY INDEBTED POOR COUNTRIES (HIPC)

The Council held a debate on how to improve the HIPC Debt Initiative on the basis of an oral report by the Chairman of the EFC on the work carried out by this Committee on the subject.

The Council underlined that improvements of this Initiative - without putting into question the necessary conditionality - should aim in particular at speeding up the debt reduction in favour of the poorest countries and at setting the different indicators measuring sustainability at a lower level.

Furthermore, the extent of cancellation of commercial debt, currently at 80%, should be increased to 90%, and in specific individual cases to an even higher level. At the same time, the question of the financing and fair burdensharing in relation to debt relief efforts will need to be taken into account.

These guidelines will be the basis for further negotiations on the HIPC with the EU's international partners.

  • REPORT ON THE PROMOTION OF INVESTMENT IN EUROPEAN INFRASTRUCTURE AND IN HUMAN CAPITAL

The Council took note of the report on investment in infrastructure in the European Union, which was drawn up by the Commission following the Vienna European Council conclusions.

The report reviews progress on Trans-European Networks (TENs), in particular on the 14 projects in transports, as well as the development of growth-enhancing projects in the area of telecoms and information technology, with the aim of speeding up the implementation of these projects. This review also deals with ways to enhance financing arrangements involving the European Investment Bank drawing on its experience under the Amsterdam Special Action Programme (ASAP). In its report, the Commission stresses two important initiatives, one concerning the idea of creating a special risk-sharing window for infrastructure at the EIB, in line with the approach of the ASAP, and the project of a European Satellite Navigation System, Galileo.

The Council also took note of an intervention by the President of the EIB, Sir Brian Unwin, who drew the Council's attention to the important financing which his Institution provided for the TENs, making it the single biggest lender in this area. In this context, he asked for an update of the Essen list of theTENs projects. He also set out the EIB's position with regard to public/private sector partnership financing.

The Council concluded that a number of questions arising in this context would have to be addressed further after the European Council.

taxation

  • CODE OF CONDUCT ON BUSINESS TAXATION

The Council welcomed the second interim report on the work carried out by the Code of Conduct Group on business taxation which was presented by Paymaster General Dawn Primarolo in her capacity as Chair of this Group.

The Group - which was established on the basis of a Resolution on the Code of Conduct on Business taxation of 1 December 1997 to assess potentially harmful tax measures - submitted its first interim report to ECOFIN in time for the Vienna European Council last December. The Group's objective is to complete its work at the latest by the Helsinki European Council at the end of this year.

The report contains two main elements. The first is a factual account of the work that the Group has accomplished since December. Descriptions of the potentially harmful measures for all five categories of the list which was drawn up last year were agreed, (intra-group services; financial services and offshore companies; others sectors specific measures; original incentives; other measures). Descriptions of the tax systems and potentially harmful measures of the dependent and associated territories of Member States were also agreed.

Initial assessments have been carried out for all of these measures. The Group heard the views of Member States on whether they provide for an effective level of taxation which is significantly lower than those which generally apply in the Member State in question. The Group also received information from some Member States about measures which concern outermost regions and small islands.

The second element of the report looks at the future work to be carried out towards the report to the November ECOFIN Council. The Group will have to address the remaining additional measures, given that since December a considerable number of extra measures have been added by Member States. The aim will be to bring them all to the same level of assessment as the measures examined so far, therefore agreeing descriptions, carrying out initial assessment and considering the effective levels of taxation which they produce.

The Group will also have to consider some specific issues concerning a number of different measures which need to be examined in more detail to inform the final assessment process. To this end, a series of short discussion papers will be presented for the Group's consideration. Among the themes which have been identified are timing differences, small and medium sized enterprises, shipping, small economies and regional development.

The Group will have to examine the results of two Commission's studies, on administrative practices, on the one hand, and on a cross country review of holding companies, on the other, which will contribute to the better understanding of the harmful tax competition issues.

Following the largely factual and analytical work carried out up to now, the Group will have to focus on the assessments to be included in the final report with a view to presenting it to the ECOFIN Council in November 1999.

  • SAVINGS TAXATION

The Council adopted conclusions regarding the proposal for a directive on savings taxation focusing on four main aspects : the administrative burdens imposed on paying agents; the taxation of international bonds; the definition of interest; and the situation in dependent and associated territories of Member States (see below).

Minister Gordon BROWN informed the Council that his delegation will indicate its detailed position of how to deal with eurobonds at the beginning of next month. The Vice-President of the ECB drew the Council's attention to the fact that in view of the single currency, there should no longer be made any distinction between eurobonds and domestic bonds in euro.

The Luxembourg delegation stated that the proposed Directive should not be applied to investment funds and similar instruments. The Greek delegation asked for a provisional derogation from this draft Directive for its country in view of its joining the euro next year.

Some Member States asked for further examination by experts of the revenue sharing system.

The Council also took note of information given by Member States with dependent or associated territories (France, The Netherlands, Denmark, United Kingdom and Portugal) on the state of their contacts undertaken with these territories in view of introducing measures equivalent to the draft Directive.

In its concluding remarks, the Presidency stressed that readiness from all sides to compromise and early submission of outstanding reports were important in order to achieve agreement on this proposed Directive by the end of the year.

  • savingS taxation - conclusions

The European Council, at its meeting in Vienna on 11/12 December 1998 asked the Council (ECOFIN) to continue its work interalia on the Directive on taxation of savings with a view to reaching agreement on this proposal before the European Council meeting in Helsinki. A number of important issues arising under the proposal were discussed in the Council's Financial Questions Group, some of which are related to the need to preserve the competitiveness of European financial markets world-wide and to the scope of the Directive.

At the informal ECOFIN meeting from 16 to 18 April, Ministers instructed the Financial Questions Group to agree in time for the Council meeting on 25 May 1999 on a solution aimed at reducing the administrative burden of paying agents. They also requested the Group to examine the possibility of exempting the wholesale trade in international bonds and to conclude their examination on this point, if possible, before the Council meeting on 25 May 1999. The Group examined these two issues. In addition, the definition of interest in Article 5 (a) and (b) of the proposal for a Directive was discussed.

On the basis of the examinations carried out by the Financial Questions Group the Council draws the following conclusions.

1. Administrative burdens imposed on paying agents.

     There is agreement on the principles

        that paying agents should treat a payment to EU-resident individual recipients as falling within the scope of the Directive;

        that in the case of individual interest recipients declaring their place of residence to be outside the EU, paying agents should treat a payment as not falling within the scope of the Directive if the payee submits satisfactory evidence of its third-country residence;

        subject to agreement on a minimum standard for evidence of third-country residence under the Directive, identification procedures are regulated by Member States.

     The Financial Question Group is asked to examine

        the details of implementation of these general rules, including the possibility of common minimum standards for evidence of third-country residence;

        the question of how to treat an EU-resident individual recipient that identifies itself as not being the beneficial owner;

        the need for anti-abuse provisions preventing EU- resident beneficial owners from avoiding application of the Directive, in particular by channelling interest payments through third-country resident recipients.

2. International bonds

     The Council recognises that the treatment of interest paid on international bonds as provided for under the Draft Directive might give rise to problems regarding competitiveness of financial markets, in particular wholesale markets. Member States are prepared to consider the possibility of a compromise solution that takes into account the ways the bond markets operate and the objectives of the Directive. Pending clarification of the UK position on the issue, however, the Financial Questions Group was not yet able to conclude its examinations as requested.

3. Scope of the Directive-definition of interest

     All Member States agree on the part of the definition contained in Article 5 (a) of the Draft Directive.

     They also agree that a pragmatic approach should be taken to the definitional issues arising under Article 5 (b) and that, at this stage, proceeds from innovative financial instruments should not be included in the definition but subject to the review of the Directive provided for under Article 13 in the light of Member States' experience gained in applying the Directive.

     Following this principle there is agreement that in order to prevent „coupon washing" the part of the definition in Article 5 (b) should be amended so as to include interest income realised on sales of bonds made prior to the redemption date. Also, it is understood that synthetic discount instruments (stripped bonds or coupons) are covered by Article 5 (b).

     The Council instructs the Group to examine the details of the necessary amendments to Article 5 (a) and/or 5 (b) and ways of determining the method of the interest income subject to withholding or reporting under Article 5 (b), and of difficulties of implementing the principles mentioned in preceding paragraph.

4. Dependent and associated Territories

     The Council takes note of the reports of Member States having dependent or associated territories on efforts made or intended to ensure the implementation of the commitment to introduce, within the framework of their constitutional arrangements, measures equivalent to the Directive in these territories. Progress in encouraging those territories to introduce such measures is important in order to continue the political dialogue with European third countries. The Council invites Member States concerned to further report to the Council (ECOFIN) at its meeting in October 1999.

The Council invites the Financial Questions Group to continue its work and to make all necessary efforts to meet the target of adoption of the Directive in 1999.

  • TAXATION OF INTEREST AND ROYALTY PAYMENTS - conclusions

The Council discussed the key political points of the proposal for a Directive on a common system of taxation applicable to interest and royalty payments made between associated companies. To keep the right balance between Member States' views, the Council and the representatives of the Governments of the Member States, meeting within the Council, agreed on the following conclusions:

    1. This Directive is part of the tax package adopted under the Luxembourg Presidency on 1 December 1997. Only in that context will final adoption take place.

    2. A further balancing-out of interests is to be effected through the scope of the Directive.

     Only a small body of associated companies may offer financial and technological services free of withholding taxes in line with the OECD Model Convention of 1997 with respect to Taxes on Income and on Capital. This body is limited to the forms of companies which are specifically listed, where they are directly associated with one another, and to their permanent establishments, and the concept of "capital" is to be interpreted narrowly in the case of associated companies.

    3. Subject to final adoption of the Directive, Greece and Portugal will be granted final support in the form of a transitional period of eight years, with the tax rate not exceeding 10% during the initial years and 5% during the final years.

    4. The administrative procedures in the individual Member States for the reduction of withholding taxes should be observed as far as possible. This has proved sound in the context of the Directive on parent companies and subsidiaries.

    5. Furthermore, departures from comparable arrangements under the Directive on parent companies and subsidiaries which have proved sound should be made only in justified cases.

The Council calls on the Working Party on Financial Questions actively to pursue its discussions on the basis of these conclusions and to bring them to a close.

  • ENERGY TAXATION

The Council examined a compromise proposal drawn up by the Presidency on key elements of a Community framework for taxation of energy products. The compromise proposal was aimed at providing guidance to the further work to be carried out on the draft Directive on energy taxation.

It is recalled that discussions in the Council on its session of 15 March 1999 had shown that, on the one hand, a majority of Member States considered a Community framework for energy taxation to be necessary to improve the functioning of the Internal Market and to achieve environmental objectives, and that, on the other hand, some Member States were of the opinion that the proposal raised fundamental problems because of its economic effects.

In order to overcome these problems, the Presidency's compromise proposed notably a number of transitional periods for some Member States, exemptions or reductions in the level of taxation of certain products, including the possibility of zero rates. The framework should cover both energy products which are not yet covered by Community Excise legislation: natural gas, coal, lignite, electricity, as well as energy products which are already covered by Community legislation: motor fuels and heating fuels.

Ministers' interventions showed that 13 delegations could agree with the basic features of this compromise proposal, on the understanding that further work had to be carried out on specific questions before reaching an agreement on a final draft aimed for the end of the year. Two delegations could not accept the Presidency compromise as a basis for further work.

  • excise duties on tobacco

The Council reached agreement on the draft Directive amending the Directives on the approximation of taxes on cigarettes (EEC/92/79), on the approximation of taxes on manufactured tobacco other than cigarettes (EEC/92/80) and on taxes other than turnover taxes which affect the consumption of manufactured tobacco (EEC/95/59).

The draft Directive is aimed at ensuring a more uniform interpretation and implementation of the present Community arrangements on excise duties on tobacco, in order to make the single market operate smoothly, whilst still allowing Member States sufficient flexibility to identify and implement policies tailored to national circumstances.

The draft Directive establishes transitional periods for its implementation by some Member States, namely Sweden which is granted a prolongation of its derogation from the overall minimum excise rate of 57% (of the retail selling price) until 31 December 2002; France is given an additional period until 31 December 2002 for cigarettes and tobacco products sold on the island of Corsica; and Germany is given an additional period to adjust its national rates for fine-cut tobacco rolls in line with Community legislation.

The draft Directive also sets out a schedule of increases in order to avoid a fall in the value of the Community minimum rates of duty on cigars, cigarillos and hand-rolling tobacco and other smoking tobacco.

With regard to the regular review procedure of the new arrangements (and in particular the derogations), the draft Directive provides for this review to be carried out every three years and for the first time before 31 December 2000.

  • REDUCED VAT RATE ON LABOUR-INTENSIVE SERVICES

The Council took note of the work carried out with regard to the Commission proposal, of 15 March 1999, for an amendment to Directive 77/388/EEC as regards the possibility of applying, on an experimental basis, a reduced VAT rate on labour-intensive services. In order to benefit from a reduced VAT rate, these services need to be provided directly to final customers, predominantly local and not likely to create distortions of competition or effect the smooth functioning of the Internal Market.

Two Member States stressed the importance of this proposal and the need to speed up work on it. Some delegations, however, expressed doubts on whether it would actually achieve the desired objectives of enhancing job creation. Other delegations proposed to set up an agreed list of labour intensive services to which the envisaged VAT reduction would apply, in order to avoid the difficulty existing otherwise to identify the labour intensive services targeted by the draft Directive.

The Council mandated its competent bodies to pursue the examination of this proposal on the basis of Member States' comments, including the attempt of defining the above mentioned list.

efficient financial management - fight against fraud

  • EUROPEAN FRAUD PREVENTION OFFICE - OLAF

The Council adopted the necessary legal instruments in view of the establishment of the new Fraud Prevention Office "OLAF" - replacing UCLAF - which should start its work on 1 June 1999.

Following this adoption, the Council, the Commission and the European Parliament proceeded to the signature of the interinstitutional agreement concerning internal investigations by the European Anti-Fraud Office to be carried out within these three Institutions.

The Council expressed its satisfaction that this important new tool for fighting fraud and financial irregularities within the EU institutions and against EU interests has been established in close cooperation with the Commission and the European Parliament.

The new Fraud Prevention Office introduces the following important innovations :

    - The Office has its own right of initiative to carry out investigations and will be totally independent from instructions;

    - Investigations can be carried as well in the Member States as in all bodies, institutions and offices of the Community;

    - The Office will be strengthened by appointing well-experienced investigators - also from Member States;

    - The Office's investigators will have access to all necessary information and will be able to cooperate directly with national justice authorities and EU authorities;

    - The Director of OLAF will be nominated by the Commission in agreement with the Council and the European Parliament. He will be controlled by a Supervisory Committee of 5 independent external personalities of high standing, which will also be appointed jointly by the Council, the European Parliament and the Commission (1).

The legal instruments adopted by the Council are the following :

    - Regulations (EC and EURATOM) concerning investigations conducted by the European Anti-Fraud Office;

    - Interinstitutional Agreement concerning internal investigations conducted by the European Anti-Fraud Office, including a form of internal decision that each Community institution, organ or body ought to adopt;

    - Decision of the Council concerning conditions and modalities of internal investigations- within its own framework - relating to fight against fraud, corruption and any other illegal activities affecting the interests of the European Communities (2);

    - Decision concerning the nomination of the Members of the Supervisory Committee foreseen in Article 11 of the Regulations (Council position).

It is recalled that, in approving the Interinstitutional agreement on 6 May 1999, the European Parliament stated its intention to adopt in July 1999 a Decision of its bureau on officials and other staff and an amendment to its rules of procedure concerning its members.

Most other Community institutions and agencies, in particular the Economic and Social Committee and the Committee of the Regions, have already stated their intention to accede to the interinstitutional agreement and to approve internal decisions similar to the one adopted by the Council.

sem 2000 - CONCLUSIONS

THE COUNCIL,

     having considered the Commission's report to the Council on the implementation of the recommendations of the Group of Personal Representatives;

     having taken cognisance of the note from the Commission to the President of the Council,

HEREBY ADOPTS THE FOLLOWING CONCLUSIONS:

    1. The Council thanks the Commission for submitting to it its fifth report on the implementation of the recommendations of the Group of Personal Representatives and a note on that subject to the President of the Council.

    2. The Council welcomes the SEM 2000 initiative's valuable contribution to improving financial management. It stresses the very useful role played by the Group of Personal Representatives in the exchange of ideas needed for designing, adopting and implementing the improvements. The Council wishes this role to continue.

    3. In general the Council considers it vital to increase efforts to achieve the necessary improvement in financial management. For citizens, this question is closely linked to the Communities' democratic legitimacy. In this context, more than ever, good, sound financial management is essential to the reinforcement of that legitimacy.

    4. The Council would like to see the new Commission, building on past experience, adopt new initiatives to improve the management of Community finances, in a form suited to the new tasks to be carried out.

    5. The Council would ask the Commission first to turn its attention to the efficient implementation of all the Regulations recently adopted in the framework of Agenda 2000.

    6. The Council also asks the Commission to submit, as soon as possible after the renewal of the Commission, a proposal for recasting the Financial Regulation applicable to the general budget of the European Communities, based on the conclusions which the Council adopted on 25 January 1999 and on Opinion No 4/97 of the Court of Auditors. The Council also asks the Commission to submit a draft bringing the implementing arrangements into line with the most recent amendments made to the Financial Regulation.

    7. The Council would like better use to be made (including by its own subsidiary bodies) of the reports of the Court of Auditors. It would also like the interinstitutional dialogue on monitoring the implementation of the Community budget to be stepped up.

    8. The Council calls for the substantial progress already made in evaluating Community policies and actions to be taken still further. As already stated in the remarks which accompany its Recommendation on the discharge to be given to the Commission for the financial year 1997, the Council, basing itself on the comments of the Court of Auditors, would like the methodological framework for the evaluation and its impact on the decision-making and budgetary process to be strengthened.

    9. The Council is pleased with the work already done to improve the efficiency of financial control and the campaign against fraud, both in the Member States of the European Union and in the applicant countries. It attaches the greatest importance to strengthening practical capacity for action in these fields. A special effort should be made as regards cooperation with the applicant countries on financial control and a related field.

items dealt with under "any oTHER BUSINESS"

The Council took note of a proposal by the Spanish delegation to set up a High level working Group on tax fraud that would be entrusted to analyse ways to improve cooperation between the fiscal administrations of all Member States in the fight against tax fraud (in both fields of direct and indirect taxation).

The Council mandated its competent bodies to examine this proposal and to report to it at a forthcoming session.

The Council also took note of a French intervention on duty-free sales asking for further examination of this matter. The President noted with regard to this request that there was no unanimity among Member States necessary to postpone the abolition of intracommunity duty-free sales on 30 June 1999.

The Council took note of a presentation by Commissioner de SILGUY of his institution's proposal for a renewal of the Community guarantee for EIB lending in third countries which expires in principle on 1 February 2002. The proposal for a draft Decision, adopted by the Commission on 26 April 1999, granting a Community guarantee to the EIB against losses under loans for projects outside the Community, essentially providing for a rollover of the previous measures, except for the amounts of the regional mandates and the percentage for the blanket guarantee.

The Council mandated its competent bodies to conclude work on this proposal as soon as possible given that it did not propose any major changes to the previous system.

SIGNATURE OF PROTOCOL RELATING TO THE ARBITRATION CONVENTION

Following agreement on the text, the Member States signed the Protocol amending the Convention of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits on associated enterprises (Arbitration Convention).

The Protocol provides an extension of 5 years of the Arbitration Convention from the existing expiry date of 31 December 1999. The Convention will then be renewable every five years by tacit procedure, that is, unless any Contracting State objects.

ITEMS APPROVED WITHOUT DEBATE

(In the case of legislative acts, votes or abstentions are indicated. Decisions containing statements which the Council has decided to release to the public are indicated by asterisks; the statements in question may be obtained from the Press Office.)

ecofin

Standard rate of VAT *

The Council adopted a Directive amending, with regard to the level of the standard rate, Directive 77/388/EEC on the common system of value added tax. This Directive concerns the level of the minimum standard VAT rate to be applied from 1 January 1999 until 31 December 1999.

It is recalled that, as established by the 6th VAT Directive, the Commission proposed on 1 December 1998 a minimum rate of 15% and a maximum rate of 25%, as well as an application period from 1 January to 31 December 1999.

This Directive, however, only sets a minimum standard rate of 15% applicable during a longer period, namely from 1 January 1999 until 31 December 2000. In adopting this directive, Member States declared that during this period they undertake to use their best endeavours to avoid widening the current span of 10 percentage points above the current lowest standard rates applied by Member States.

Regulation amending the Guarantee Fund for external actions

Following its political agreement reached on 1 December 1998 and further to the agreement on the Financial Framework 2000-2006 at the Berlin European Council of last April, the Council formally adopted the Regulation amending Regulation (EC, Euratom) n° 2728/94 establishing a Guarantee Fund for external relations.

The Guarantee Fund for external actions is endowed by payment from the general budget of the European Communities, by the interest on its invested resources and by the amounts recovered by defaulting debtors where the Fund has already honoured the guarantee.

In the light of experience of the functioning of the Guarantee Fund, the Regulation fixes the target amount at 9% of the Community's total outstanding capital liabilities arising from each operation, in principle, increased by unpaid interest due and sets out that the payment to the Guarantee Fund should be equivalent to 9% of the capital of each operation.

With regard to the provisioning rate of the Fund, the draft regulation establishes that if, as a result of the activation of guarantees following default, resources in the Fund stand below 75% of the target amount, the rate of provisioning on new operations shall be raised to 10% until the target amount has once more been reached.

appointment

Committee of the Regions

The Council adopted a Decision appointing Mr Reinhard KLIMMT a member of the Committee of the Regions in place of Mr Oskar LAFONTAINE for the remainder of his term of office, which expires on 25 January 2002.

(1) The Council declared itself in favour of appointing: Mrs Mireille DELMAS-MARTY (F), Mr Edmondo BRUTI-LIBERATI (I), Mr José Narciso da CUNHA RODRIGUES (P), Mr Raymond KENDALL (UK) and Mr Harald NOACK (D).

(2) As regards the Members of the Council and its bodies who are representatives of the Member States, subject in the exercise of their functions essentially to national law, the application of this Decision will be limited to activities undertaken by them in that capacity (as Members of the Council or its bodies).


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