UK and International Tax news

EU Savings Tax Directive Update

Tuesday 22nd April 2014

A revised EU Savings Tax Directive was formally adopted by member states on 24 March 2014, following a European Council agreement reached on 20 March, with expanded information exchange and a wider scope of savings products.

The Directive requires member states to exchange information automatically so as to enable interest payments made in one member state to residents of other member states to be taxed in accordance with the laws of the state of tax residence. It will enable member states to better clamp down on tax fraud and tax evasion.

The original Directive 2003/48/EC required member states to exchange information automatically, however, for a transitional period, three member states [Austria, Belgium and Luxembourg] agreed to levy a withholding tax instead of exchanging information.  The end of the transitional period was not fixed and depended on the agreement of third countries to establish information exchange relationships with EU member states.

The new text also enlarges the scope of Directive 2003/48/EC, reflecting changes to savings products and developments in investor behaviour since it came into force in 2005.  The scope now covers new types of savings income and products that generate interest or equivalent income, including life insurance contracts, as well as a broader coverage of investment funds.  In addition, tax authorities, using a “look-through” approach, will be required to take steps to identify who is benefiting from interest payments.

In December 2013, the European Council called for the amending Directive to be adopted by March 2014, given its significance in combating tax fraud and tax evasion. Member states will have until 1 January 2016 to adopt national legislation necessary to comply with the directive.

The revised Directive will be part of the EU’s legislative structure for implementing the new global standard on automatic exchange of information [see our International Tax News item of 20 February 2014 – OECD Standard For Automatic Exchange Of Financial Information].

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