EU  finance ministers fail to make headway on Galileo, VAT

Ambitious plans for a European Union satellite-navigation system remained stuck Tuesday after finance ministers continued to clash over alternative funding plans put forward by Brussels and Germany.

And government officials meeting in Brussels also failed to make headway on proposed changes to the way that value-added tax (VAT) should be applied in the 27-member bloc because of opposition from Luxembourg.

Tuesday's disagreement on Galileo came just a day after German Chancellor Angela Merkel and French President Nicolas Sarkozy, as heads of the EU's two main powerbrokers, had indicated that a deal should be reached over the coming weeks.

Galileo aims to become a commercial rival of the United States's GPS system, which is now used by millions of people around the world.

European Commission chief Jose Manuel Barroso recently described the 3.4-billion-euro (5 billion dollars) project as being of 'fundamental importance' for Europe.

But a 2.4-billion-euro budget shortfall caused by private investors pulling out has left the EU in a funding quandary.

EU Transport Commissioner Jacques Barrot has pledged to save Galileo by diverting unused community funds.

But Germany wants money destined for the European Space Agency (ESA) to at least help pay for Galileo.

'Germany put forward that point of view, but was alone in doing so. There was no support for (the proposal) from other member states,' said Portuguese Finance Minister Fernando Teixeira Dos Santos.

One EU diplomat confirmed that there had been 'no explicit support' for the German plan.

But German deputy finance minister Thomas Mirow retorted that 'an important number of member states' had also opposed Barrot's idea.

Talks on Galileo were now expected to be picked up by EU transport ministers meeting later this month, but few expect a result before a European Council of heads of government and state taking place in December.

On taxation, Luxembourg once again vetoed a proposal to levy VAT on telecoms, broadcasting and electronic services in the nation where the customer lives, rather than where the supplier is based.

A number of big internet, telecom and broadcasting companies, such as web-based phone supplier Skype, are based in tiny Luxembourg because it applies a 15 per cent VAT on their products - the lowest such rate in the EU.

Luxembourg Prime Minister and Finance Minister Jean-Claude Juncker has argued that the Grand Duchy would stand to lose some 220 million euros (323 million dollars) in tax revenue if the reform was adopted.

Decisions on taxation require unanimity within the 27-member bloc.