EU Savings Tax Beneficial Owner

EU Council Swedish Presidency Amendment Article 2

Ref	Amendment	Comments
Pt 3	Directive 2003/48/EC applies only to interest payments made for the immediate benefit of individuals resident in the European Union. These individuals may thus circumvent Directive 2003/48/EC by using an interposed entity or legal arrangement, especially one established in a jurisdiction where taxation of income paid to this entity or arrangement is not ensured. Having regard also to the anti-money laundering measures laid down in Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, it is therefore appropriate to require paying agents to apply a "look through approach" to payments made to certain entities or legal arrangements established or having their place of effective management in certain countries or territories where the Directive or measures to the same or equivalent effect do not apply. They should use the information already available to them about the actual beneficial owner(s) of such entities orlegal arrangements to ensure that the provisions of Directive 2003/48/EC are applied when the beneficial owner so identified is an individual resident in a Member State other than the one where the paying agent is established. In order to reduce the administrative burden on paying agents, an indicative list of entities and legal arrangements in third country jurisdictions concerned by this measure should be drawn up.	Untaxed entities and arrangements out of territory: Offshore companies and trusts / foundations to avoid the EUSD is the most glaring loophole. Many banks each opened thousands of international business companies on behalf of their customers shortly prior to the directive's implementation. The look through approach was vigorously opposed by banks who claimed that beneficial ownership deemed by anti-money laundering procedures was different to financial beneficial ownership. However no alternative was proposed and the EU Commission deemed the best Know Your Customer information is provided by the anti-money laundering procedures, which is now ubiquitous EU law.
Art 2 Par 3	Where an economic operator who is also within the scope of Article 2 of Directive 2005/60/EC of the European Parliament and of the Council, makes an interest payment to, or secures such a payment for, an entity or a legal arrangement, which is not subject to effective taxation and which is established or has its place of effective management in a country or jurisdiction outside the territory referred to in Article 7 and outside the territorial scope of agreements and arrangements providing for the same or equivalent measures to those of the Directive, the following sub paragraphs shall apply. The payment shall be regarded as having been made to, or secured for, the immediate benefit of any individual, who is resident in a Member State other than that of the economic operator and is defined in Article 3(6) of Directive 2005/60/EC as the beneficial owner of the entity or legal arrangement. The identity of that individual shall be established in accordance with the customer due diligence measures provided for in Articles 7 and 8(1)(b) of that Directive. That individual shall also be regarded as the beneficial owner for the purposes of this Directive.	Look through offshore entities / arrangements using the 2005/60/EC Anti-Money laundering Directive Art 3 Par 6, which states: Beneficial Owner means the natural person(s) who ultimately owns or controls the customer and/or the natural person on whose behalf a transaction or activity is being conducted. The beneficial owner shall at least include: in the case of corporate entities: the natural person(s) who ultimately owns or controls a legal entity through direct or indirect ownership or control over a sufficient percentage of the shares or voting rights in that legal entity, including through bearer share holdings, other than a company listed on a regulated market that is subject to disclosure requirements consistent with Community legislation or subject to equivalent international standards; a percentage of 25 % plus one share shall be deemed sufficient to meet this criterion; the natural person(s) who otherwise exercisescontrol over the management of a legal entity: in the case of legal entities, such as foundations, and legal arrangements, such as trusts, which administer and distribute funds: where the future beneficiaries have already been determined, the natural person(s) who is the beneficiary of 25 % or more of the property of a legal arrangement or entity; where the individuals that benefit from the legalarrangement or entity have yet to be determined, the class of persons in whose main interest thelegal arrangement or entity is set up or operates; the natural person(s) who exercises control over 25 % or more of the property of a legal arrangement or entity;
Art 2 Par 3 cont.	For the purposes of the first subparagraph, the categories of entities and legal arrangements referred to in the indicative list of Annex I shall be considered to be not subject to effective taxation. The economic operator referred to in the first subparagraph shall establish the legal form and the place of establishment or, where relevant, the place of effective management of the entity or legal arrangement, by using the information disclosed by any individual acting on behalf of the entity or legal arrangement notably in accordance with points (b) and (bb) of paragraph 1, unless the economic operator has more reliable information available indicating that the received information is incorrect or not complete for the purposes of the application of this paragraph. Where an entity or a legal arrangement does not fall within the categories referred to in Annex I or where it falls within those categories but claims to be subject to effective taxation, the economic operator referred to in the first subparagraph shall establish whether it is subject to effective taxation on the basis of facts that are generally acknowledged or on the basis of official documents presented by the entity or legal arrangement or available through customer due diligence measures taken in accordance with Directive 2005/60/EC.	Look through offshore entities / arrangements (cont.) Even if an offshore entity / arrangement is omitted from Annex I and is not subject to effective taxation, e.g. Israeli foreign trusts, Singapore companies, or newly expected tax havens such as Jamaica or Ghana, the EUSD will still apply. Funds: This also means that funds outside the EUSD jurisdiction, which fall below the 40% (25%) debt threshold and which do not pay tax could be candidates for look through by the Paying Agent.
Art 2 Par 4	Where an entity or a legal arrangement is considered to be a Paying Agent upon Receipt of an interest payment or upon securing of such payment in accordance with Article 4(2), the interest payment, shall be deemed to accrue to the following individuals, who shall be regarded as Beneficial Owners for the purposes of this Directive: any individual who is entitled to receive the income arising from the assets producing such payment, or who is entitled to receive other assets representing such payment when the entity or legal arrangement receives the payment or when the payment is secured on its behalf, in proportion to his entitlement tothat income;	Untaxed entities / arrangements within EU Jurisdiction: Trusts / foundations / partnerships / companies not subject to tax within the EUSD jurisdiction must become a Paying Agent upon receipt. These Paying Agents must then either apply the EUSD upon receipt of interest or distribution of that income.
Art 2 Par 4 cont.	For any part of the income arising from the assets producing such payment, or of the other assets representing such payment, to which no individuals as referred to in point (a) are entitled when the entity or legal arrangement receives the payment or when the payment is secured on its behalf, any individual who has directly or indirectly contributed to the assets of the entity or legal arrangement concerned, regardless of whether this individual is entitled to the assets or income of the entity or legal arrangement	Key closure of loophole for untaxed entities / arrangements within EUSD jurisdiction - Part I - Deeming the settlor / founder as Beneficial Owner: This is specifically aimed at discretionary trusts and foundations within the EUSD jurisdiction. If there is no specific beneficiary entitled to the income at the time of receipt of interest, then the Settlor or Founder will be deemed to be the Beneficial Owner. The simple logic behind this deeming clause, is that although the assets may have been given away by the settlor / founder, no-one can be held responsible for the tax because the management of the legal entity / arrangements are not taxed, for example Liechtenstein foundations or Jersey trusts. Therefore, until an accountable party exists to pay the tax, the assets for tax purposes still belong to the settlor / founder.
Art 2 Par 4 cont.	If there are no individuals referred to in points (a) or (b) who are collectively or severally entitled to all of the income arising from the assets producing such payment, or to all the other assets representing such payment, at the time of receipt or securing of the interest payment, any individual, in proportion to his entitlement to that income, who, at a later date, becomes entitled to all or part of the assets producing the interest payment or to other assets representing such interest payment. The total amount that shall be deemed to accrue to such individual, shall not exceed the amount of the interest payment received by or secured for the entity or legal arrangement, after deduction of any part that has been attributed in accordance with this paragraph to an individual referred to inpoints (a) or (b).	Key closure of loophole for untaxed entities / arrangements within EUSD jurisdiction - Part II - Appointment as Paying Agent: No individuals can be identified as the beneficiary and no individual can be identified as the initial contributor of assets to the entity / arrangement occurs when: The settlor / founder is deceased, or A nominee has been used as settlor / founder then the trust / foundation will act as a Paying Agent. It must then keep track of interest earned and apply the EUSD upon distribution of the arrangement's assets.

2. Place of effective management of an entity, with or without legal personality, shall mean the address where key management decisions are taken that are necessary for the conduct of the entity’s activity as a whole. Where key management decisions are taken in more than one country or jurisdiction, the place of effective management shall be considered to be at the address where most of the key management decisions are taken relating to the assets producing interest payments within the meaning of this Directive;
3. Place of effective management of a trust or other legal arrangement shall mean:
   1. The permanent address of the natural person who has the principal responsibility for the key management decisions relating to the assets of the legal arrangement, in the case of a trust the trustee. Where more than one natural person has such principal responsibility, the place of effective management shall be considered to be at the permanent address of the person who has the principal responsibility for most of the key management decisions relating to the assets producing interest payments within the meaning of this Directive, or
   2. The address where the legal person, who has the principal responsibility to manage the assets of the legal arrangement, in the case of a trust the trustee, takes the key management decisions relating to these assets. Where key management decisions are taken in more than one country or jurisdiction, the place of effective management shall be considered to be at the address where most of the key management decisions are taken relating to the assets producing interest payments within the meaning of this Directive



4. Subject to effective taxation shall mean that an entity or a legal arrangement is liable to tax on all its income, or on the part of its income attributable to its non-resident participants,including on any interest payment.