EU finance ministers debated a proposal to apply a windfall tax to oil company profits yesterday amid concerns of profiteering during the current period of high fuel prices.

The informal discussions by ministers follow corporate results that show Exxon made $1,000 (€785) per second of profit and Shell made $785 per second profit in the first quarter of 2006.

Luxembourg prime minister and president of the Eurogroup, Jean-Claude Juncker, said that there seemed to be a sort of irritation in public opinion about the huge profits made by the firms.. "On taxation of oil company profits, as I said, we are at the beginning of a process. I can simply say we started this discussion. I can say no more than that," Mr Juncker said at the start of an Ecofin meeting of finance ministers in Brussels.

The controversial proposal received some support from Slovenia's finance minister, but was strongly opposed by several EU states, particularly the Netherlands.

Minister for Finance Brian Cowen said that he was against a windfall tax proposal on oil profits, which could have a distorting effect on the European economic landscape. "If we are heading into a higher oil price regime... we cannot shelter ourselves from that reality," said Mr Cowen.

Austrian finance minister Karl-Heinz Grasser, who chaired the talks as EU president, said the idea would only make sense if it was applied by all states.

"The idea is in its infancy, there has been no thorough discussion. I think we should be prudent on taxation and go ahead only globally to avoid distortions in competition between the main economic blocs," he said.

Finance ministers also laid the groundwork for a potential deal on VAT reform that is intended to make life simpler for businesses and to stop the flow of telecoms and e-commerce firms locating in low VAT regimes such as Madeira and Luxembourg.

Both jurisdictions levy a VAT rate of 15 per cent - the lowest throughout the EU - on telecoms services and digital services such as music downloads that are supplied to European consumers over the internet.

This has attracted firms such as Skype and AOL, which levy VAT at the rate of the country from which they supply their service.

EU tax commissioner Laszlo Kovacs said that unless the location of levying VAT was changed, businesses would set up shop in member states with the lowest VAT rate.

"That is the reason why we prefer, until there is greater harmonisation of VAT rates, a 'country of consumption' principle," said Mr Kovacs.

Several states, including Ireland with its uncompetitive 21 per cent rate of VAT, want to change the rules to force firms to levy VAT in the state where the consumer lives.

Luxembourg, Portugal and Germany oppose the measure. Ministers will meet again next month to try to find agreement on the issue.