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Planning for the EU Savings Tax Amendment
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Web site info updated: 25.7.2010
Home page: Current Status
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Revision to the EU Savings Tax Directive
The EU Commission released a press statement in 2008 regarding its proposed amendment COM/2008/727 
to the original EU Savings Tax Directive 2003/48/EC.
Current Status as at July 2010
The Proposal must be unanimously approved by ECOFIN, the Economic Council of the 27 EU member states' Finance Ministers.
Luxembourg and Austria Object to proposal:
Although Luxembourg has not overtly opposed to the broadening of the directive's scope, they do vehemently object to the end of their banking secrecy.
Savings directive states "In order to avoid differences in treatment, Austria, Belgium and Luxembourg should not be obliged to apply automatic exchange of information before the Swiss Confederation, the Principality of Andorra, the Principality of Liechtenstein, the Principality of Monaco and the Republic of San Marino ensure effective exchange of information on request concerning payments of interest." Luxembourg objects to the revised proposal which terminates the withholding tax transitional period and mandates the automatic exchange client information. This is viewed as an uneven playing field if Switzerland can continue withholding tax instead of automatically exchanging information, thereby maintaining Swiss banking secrecy advantage. Also Luxembourg and Austria want to ensure that third parties to the original savings directive also agree to teh amendments before it is adopted.
As Luxembourg's can veto the amendment, it is likely the EU Commission will now revise their amendment proposal to indefinitely postpone the transitional period until a level playing field is obtained. It is expected the EU Council will unanimously approve the EUSD amendment in 2010 for implementation in January 2013.
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Latest Proposal
In December 2009, the EU Council Swedish presidency submitted a revised Proposal for a Council Directive amending Directive 2003/48/EC on taxation of savings income in the form of interest payments.
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Regular review and change to the directive
The relatively small results of the savings tax confirms the inefficiency of the EU Savings Tax Directive. Depending on the jurisdiction, anecdotal evidence implied the savings tax was levied on between 1% - 10% of interest that should have been within the directive's scope. The Liechtenstein tax scandal in February 2008 merely expedited the amendment proposal process. The European Commission on 13 November 2008 adopted an amending proposal to the Savings Taxation Directive, with a view to closing existing loopholes and better preventing tax evasion. The Commission proposal seeks to improve the Directive, so as to better ensure the taxation of interest payments which are channeled through intermediate tax-exempted structures. It is also proposed to extend the scope of the Directive to income equivalent to interest obtained through investments in some innovative financial products and life insurance products.
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Savings Tax Directive Weaknesses
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Amendments to Close Loopholes |
 The definition of Interest was too narrow. This allowed product providers to build financial instruments that were substitutes of interest or wrapped interest, thereby avoiding Article 6 of the EUSD.
The definition of Paying Agent only related to the final financial institution paying interest to the individual. This allowed Paying Agents to route interest to another Paying Agent outside the EUSD jurisdiction or route payments to an entity which was not defined as a Paying Agent, avoiding Article 4 of the EUSD.
The definition of Beneficial Owner was defined as individuals directly collecting interest from a Paying Agent. This allowed beneficiaries to collect interest via legal entities or arrangements, thereby avoiding Article 2 of the EUSD. Examples include International business companies, partnerships, trusts, foundations, cellular companies, etc.
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 Interest definition has been expanded to all collective investments such as non-UCITS, hedge funds, private equity, structured products, insurance bonds, fixed annuities, derivatives linked to interest, etc. In 2011, the exemption of grandfathered negotiable dent securities automatically expires and the threshold for debt within a fund falls to 25%.
Paying Agent definition includes entities and arrangements managed within the EUSD jurisdiction who receive interest on behalf of beneficiaries. Funds within jurisdiction below the 25% debt threshold are candidates for Paying Agent upon receipt.
Beneficial Owner now includes beneficiaries of untaxed entities and arrangements, according to the EU anti money-laundering and anti-terrorist financing directive. For foundations and discretionary trusts within jurisdiction, the beneficiary will be deemed as the founder / settlor. If impossible to identify the individual who funds the arrangement, the foundation / trust within jurisdiction becomes a Paying Agent who must maintain record of interest collected and apply the EU savings tax upon distribution of any asset. Funds beyond the EUSD jurisdiction below the 25% debt threshold and who don't pay tax are candidates for look through by Paying Agent.
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