The Consumers' Association has called on the European Commission to investigate its formal complaint that the Irish Government is using the taxation system to stifle competition in the Irish funds management market.

The provisions of the Finance Bill 2000 have been specifically included in the complaint.

In a letter to Mr Bertrand Laubilloy, of the Internal Market Competition division of the Commission, the Consumers' Association complained that "there has been a pattern of using the domestic Irish taxation system to disadvantage competition from entering the Irish fund management market, which is dominated by the Irish life assurance sector".

The failure of the Minister for Finance, Mr McCreevy, to introduce equalisation of the tax treatment between domestic and European funds was described as "a blatant attempt at protectionism". The Consumers' Association wants the European Commissions to investigate formally its complaint by seeking an explanation from the Government. This should be "followed by formal action under European law if the matter is not put right as quickly as possible".

The complaint centres on the different tax rates applied to life assurance funds. The Consumers' Association said that under the provisions of the Finance Bill 2000, domestic Irish life insurance funds would be taxed at the standard tax rate plus 3 per cent while the existing capital gains tax rate of 40 per cent will continue to apply to European collective investments and life funds. This treatment, its argued, gives a tax advantage to the domestic industry.

The association contended that the only explanation the Government had advanced for this treatment was the potential for tax evasion through using foreign funds. Describing this argument as "a bluff", the association points out that the Government already has very stringent rules against tax evasion.