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EU directive on savings

Directive on the Taxation of Savings: European Union


The Council agreed to stick to the June 2000 Feira European Council conclusions that the exchange of information, on as wide a basis as possible, is to be the ultimate objective of the European Union in line with international developments.

 

The Council recalled the conclusions of the Feira European Council that sufficient reassurances should be obtained from certain third countries on the application of equivalent measures to those provided for in the draft Directive. Based on the Commission's report, as submitted to the Council of Finance Ministers of 3 December, the Council considered that this condition was effectively satisfied in the case of the United States and that it would be satisfied in the cases of Switzerland, Liechtenstein, Monaco, Andorra and San Marino if these countries offered to enter into agreements as outlined below.

 

The Council agreed that the European Community should, on the basis of unanimity, enter into an agreement with Switzerland based on the following package.

 

Retention and Withholding Tax

 

Switzerland will apply the same rates of retention and withholding tax as Belgium, Luxembourg and Austria - 15% during the first three years of the transitional period starting on 1 January 2004, 20% as from 1 January 2007 and 35% as of 1 January 2010. The scope of the agreement shall also include, inter alia, the definition of the paying agent, definition of interest, including interest paid on fiduciary deposits and by Swiss investment funds. In cases where a taxpayer declares his interest income obtained from a Swiss paying agent to the tax authorities in his Member State of residence, that interest income should be subject to taxation there at the same rates as those applied to interest earned domestically. The 35% withholding rate will remain also after Switzerland has adopted exchange of information on the OECD standard.

 

Revenue sharing

 

Switzerland will share the revenue of the retention tax and will accept the 75/25 division applied within the Community and may even be prepared to reduce the percentage of 25 depending on the "overall balance of the agreement". However the revenue sharing provisions will only apply to the new retention tax and not the existing withholding tax.

 

Voluntary disclosure of information - Review clause

 

Review clause stating that the Contracting Parties shall consult with each other at least every three years or at the request of either Contracting Party with a view to examining and if deemed necessary by the Contracting Parties improving the technical functioning of the Agreement. In any event when Belgium, Luxembourg and Austria change from withholding tax to automatic exchange of information, in accordance with the Directive, the Contracting Parties shall consult each other in order to examine if changes to the agreement are necessary taking into account international developments.

 

Switzerland grants exchange of information on request for all criminal or civil cases of fraud or similar misbehaviour on the part of taxpayers. This part of the agreement may be implemented through bilateral agreements between Member States and Switzerland.

The Council agreed that the European Community should enter into similar agreements with Liechtenstein, Monaco, Andorra and San Marino.

 

The Council asked the Commission, in extension of its conclusions of 4 June 2002, to continue negotiations, in close conjunction with the Presidency of the Council, with Switzerland and the other third countries, and to press for the exchange of information as the EU's ultimate objective and to report back to the Council before 2007.

 

The Council invited the Commission to enter into discussions during the transitional period, as provided for in the Directive, with other important financial centres with a view to providing the adoption by those jurisdictions of measures equivalent to those to be applied within the EU.

 

As regards the Member States, the Council agreed that, in extension to its conclusions of 13 December 2001, the Directive on the taxation of savings based on exchange of information as the ultimate objective, will contain provisions ensuring that:

 

- 12 Member States will implement automatic exchange of information from 1 January 2004, the date of implementation of the Directive, and of the agreements with third countries as well as with the dependent or associated territories.

 

- Austria, Belgium and Luxembourg will from the date of implementation of the Directive and of the agreements with third countries as well as with the associated or dependent territories operate a (transitional) withholding tax, with 75/25 revenue sharing. These three Member States will implement automatic exchange of information:

 

# if and when the EC enters into an agreement by unanimity in the Council with Switzerland, Liechtenstein, San Marino, Monaco and Andorra to exchange of information upon request as defined in the OECD Agreement on Exchange of Information on Tax Matters (as developed by the OECD global forum working group on effective exchange of information in 2002, applying simultaneously the withholding tax rate defined for the corresponding period, for the purposes of the Directive and

 

# if and when the Council agrees by unanimity that the US is committed to exchange of information upon request as defined in the 2002 OECD Agreement for the purposes of the Directive.


By the end of the first full fiscal year following the entry into force of that agreement, Austria, Belgium and Luxembourg will cease to apply a withholding tax with revenue sharing.

Austria, Belgium and Luxembourg will set the withholding tax at 15% during the first three years of the transitional period starting on 1 January 2004, 20% as from 1 January 2007 and 35% as of 1 January 2010.

 

The Council assessed that sufficient reassurances have been obtained with regard to the application of the same measures applying the same procedures as the 12 Member States or as Austria, Belgium and Luxembourg, in all relevant dependent or associated territories (the Channel Islands, Isle of Man, and the dependent or associated territories in the Caribbean) and asked the Member States concerned (UK, Netherlands) to ensure that all relevant dependent or associated territories will apply those measures from the date of implementation of the Directive.

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