PURPOSE: to
amend Directive 2003/48/EC on taxation of savings income in the form of
interest payments.
PROPOSED ACT:
Council Directive.
CONTENT: this proposal is intended to amend Directive 2003/48/EC on
taxation of savings income in the form of interest payments (the ‘EUSD’),
with a view to closing existing loopholes and eliminating tax evasion.
Experience has shown that the directive can be circumvented. Since 2005, the
Savings Directive has ensured that paying agents either report interest
income received by taxpayers resident in other EU Member States or levy a
withholding tax on the interest income received.
The Commission
proposal seeks to extend the scope of the Directive, so as to ensure
better the taxation of interest payments which are channelled through
intermediate tax-exempted structures. It also proposes to extend the scope of
the Directive to income equivalent to interest obtained through investments
in some innovative financial products as well as in certain life insurances
products. Moreover, simplification of the technical operation of the
Directive should lead to a more user friendly system and more efficient
implementation.
Determining
the effective beneficial owner of interest payments: the first review of the Directive has shown that, at present, it
is relatively easy for individuals to circumvent the rules by using interposed
legal persons or arrangements (like certain foundations or trusts) which are
not taxed on their income.
The Commission
proposes the following :
- for interest
payments made by paying agents established in the EU to certain
intermediate structures established outside the EU, the Commission
proposes that those paying agents subject to anti-money laundering
obligations are required to use the information already available to
them within this framework to establish the actual beneficial owner of
these payments. When the latter is an individual resident in another EU
Member State, the paying agent would consider the payment concerned as
directly made to this individual.
- for interest
payments made to certain untaxed intermediate structures established
within the EU, including some non-charitable trusts and foundations,
those structures will be always obliged to apply the provisions of the
Directive (exchange of information or withholding tax) upon receipt of
any interest payment from any upstream economic operator wherever
established.
Extending
the scope to income equivalent to interest payments: the EUSD can also be circumvented by using innovative financial
vehicles instead of a classical savings account in a bank.
Therefore, the
Commission proposes extending the scope of the Directive to income from:
- securities
where the investor receives: a) a return on capital whose conditions are
defined at the issuing date; and b) a guarantee where, at the end of the
term of the securities, at least 95% of the capital invested will be
reimbursed. All securities meeting these two conditions will be included
in the scope, regardless of whether the underlying assets behind those
securities include debt claims or not. Typical examples are structured
products like those "index linked certificates" whose
performance is defined ex ante as being a function of the possible
positive trend of a market indicator or to the increase in value of a
basket of underlying securities, whilst the possible negative results of
the market indicator or of the underlying securities has no or minimal
influence on the right for the holder to be reimbursed the capital
invested;
- those life
insurance contracts whose positive performance (beyond the guarantee of
reimbursement of the capital invested) is strictly linked to income from
debt claims or equivalent income and where the mortality or longevity
risk covered under the contract is merely ancillary (lower than 5% of
capital insured as an average over the duration of the contract).
Administrative
burden: the proposal brings a major reduction of
administrative burden for individuals who opt for exchange of information in Austria, Belgium or Luxembourg where they receive interest payments and therefore claim exemption
from withholding tax. The proposal asks that the paying agent will directly
report information to the tax authorities, at the request of the individual
who authorize it, in place of levying the withholding tax.
Income from
investment funds: currently, income obtained by
individuals through some investment funds (mainly investment funds subject to
the UCITS Directive) is already within the scope of the Directive. The
Commission proposes to extend the scope of the Directive to all investment
funds or schemes, wherever located and independent of their legal form and
regulatory regime, having invested in debt claims or other equivalent
securities. For this purpose, all the current references to the UCITS
Directive for investment funds established in the EU will be replaced by a
reference to the registration of the fund in accordance with the domestic
rules of any of the Member States. For investment funds established outside
the EU, a broad definition of investment funds or schemes based on concepts
prevailing at OECD level will be used.
Technical improvements: the proposal contains provisions which are beneficial for the
activity of paying agents, such as a clearer treatment of investment funds
established in a country different from the one of the paying agent and a
clearer guidance for Member States in order to avoid possible cases of
duplication of paying agent responsibilities.
Annex: the introduction of the new annex (indicative compliance list)
will bring more clarity and legal certainty to paying agents. Annex 1 is
based on an analysis of the tax regime of the specific entity or legal
arrangement in the corresponding named jurisdiction mentioned. Only those
entities and legal arrangements to which EU resident individuals can have
access as beneficial owners and which are not subject to effective taxation
on their income in that jurisdiction are mentioned in the list. Its purpose
is to facilitate the job of the paying agents in executing the application of
the Directive. Appropriate procedures are provided to amend the list if the
information contained in it needs to be updated.
Money from
foundations : the effect of the proposal is
as follows :
- if the trust
or foundation (or other equivalent entity on arrangement) is established
outside the EU in a jurisdiction listed in annex I of the Directive
(because it is untaxed), the Commission proposes that the paying agents
established in the Union and subject to anti-money laundering
obligations would be required to use the information already available
to them within this framework to determine the effective beneficial
owner of these payments. When the latter is an individual resident in
another EU Member State, the paying agent would consider the payment
concerned as directly made to this individual, without taking into
account the formal transit of the payment through the intermediate
structure. For instance, if a bank established within the EU pays
interest to a trust established in Switzerland or in Hong-Kong and if it
knows, under the anti-money-laundering provisions, that the effective
beneficial owner of the trust is an individual resident in the EU, the
bank will be required to apply the provisions of the Directive at the
time of the payment to the trust as if this payment was directly made to
this individual.
- if the trust
or foundation (or other equivalent entity or arrangement) is established
within the EU and is not taxed on its income under the general rules for
direct taxation applicable in the Member State, the provisions of the
Directive (exchange of information or withholding tax) should apply upon
receipt of the payment by this entity. To facilitate the task of
economic operators, the Commission has established a first list of such
entities or arrangements established in the EU. This list is to be found
in annex III of the directive and will be completed and updated with the
assistance of Member States through comitology. For instance, if a trust
established within the EU receives interests from an economic operator
(bank, financial institution, independent professional) wherever established,
it will be obliged to apply the provisions of the Directive (exchange of
information or withholding tax) upon receipt of the payment, regardless
of the actual distribution of any sum to the individual beneficial
owner.