Italian demands prevented European Union finance ministers from striking a long-awaited deal with Switzerland to stem tax evasion and also an energy tax accord, Germany said at the Ecofin meeting in Brussels yesterday.

Cash-strapped EU countries in January endorsed common rules to tax income from billions of savings EU citizens place abroad. The accord was conditional on Switzerland and other non-EU financial centres signing up to a fiscal co-operation agreement.

"The Italian delegation wanted to link their vote on this issue to completely unrelated issues. That cannot be accepted," German Finance Minister, Mr Hans Eichel told reporters.

EU diplomats said Italy would only back the tax accords if it got to keep tax breaks on fuel for truckers and also wanted concessions on fines Italian farmers are due to pay to the EU for producing excessive milk quotas.

Germany is, however, opposed to granting concessions to Italy on the energy front. EU diplomats said the two countries tried to resolve the issue at a high-level meeting on Thursday, but were unsuccessful.

Under EU rules, unanimity is required to pass tax laws, meaning Italy can hold the EU at bay on both issues. The issue will return at an emergency meeting on March 19th to get the tax deals sorted out before an EU leaders' summit on March 20th and 21st.

The ministers, attending talks dominated by French deficit problems and a new voting system for the European Central Bank, wanted to seal the tax deal with the Swiss and adopt common minimum tax levels for energy products such as coal and gas.

Swiss Finance Minister, Mr Kaspar Villiger, said on Thursday the EU and Switzerland were close to a deal, barring one key issue. Switzerland has said it wants the EU to guarantee that Swiss firms with units inside the EU would get the same favourable tax treatment on repatriated dividends, interest and royalties as applies to EU companies. - (Reuters)