Taxation of savings income
The European Union is pursuing its ultimate goal of enabling interest on savings received in one Member State by individuals who are resident for tax purposes in another Member State to be made subject to effective taxation in accordance with the laws of the latter Member State.
Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments.
Aim of the Directive
The aim of the Directive is to enable savings income, in the form of interest payments made in one Member State to "beneficial owners" * who are individual residents for tax purposes in another Member State, to be made subject to effective taxation in accordance with the laws of the latter Member State. The automatic exchange of information between Member States concerning interest payments * is the means chosen to achieve effective taxation of these "interest payments" in the Member State where the beneficial owner is resident for tax purposes. Member States must therefore take the necessary measures to ensure that the tasks necessary for the implementation of this Directive - cooperation and exchange of banking information - are carried out by paying agents established within their territory, irrespective of the place of establishment of the debtor of the debt claim producing the interest.
Scope of application
The scope of this Directive is limited to taxation of savings income in the form of interest payments on debt claims, to the exclusion of the issues relating to the taxation of pension and insurance benefits. At territorial level, the Directive applies to interest paid by a "paying agent" * established within the territory to which the Treaty applies.
The general system: exchange of information
- Information reporting by the paying agent
Where the beneficial owner is resident in a Member State other than that in which the paying agent is established, the Directive stipulates that the latter must report to the competent authority of its Member State of establishment a minimum amount of information, such as the identity and residence of the beneficial owner, the name and address of the paying agent, the account number of the beneficial owner or, where there is none, identification of the debt claim giving rise to the interest, and information concerning the interest payment.
Moreover, the minimum amount of information concerning interest payment to be reported by the paying agent must distinguish between the specific categories of interest listed in the Directive. However, Member States may restrict the minimum amount of information to the total amount of interest or income and to the total amount of the proceeds from sale, redemption or refund.
- Automatic exchange of information
Under the Directive, the competent authority of the Member State of the paying agent must communicate - at least once a year, within six months following the end of the tax year of the Member State of the paying agent - the information referred to above to the competent authority of the Member State of residence of the beneficial owner.
Transitional provisions: withholding tax (Belgium, Luxembourg and Austria)
During a transitional period, Belgium, Luxembourg and Austria are not required to exchange the information on savings income covered by this Directive if they apply a withholding tax to this income. These three Member States may apply the transitional system until the Swiss Confederation, the Principality of Andorra, the Principality of Liechtenstein, the Principality of Monaco and the Republic of San Marino ensure effective and complete exchange of information upon request concerning payment of interest, and until the Council agrees unanimously that the United States of America is committed to exchange of information upon request as defined in the OECD Model Agreement. The Directive entitles these three Member States to receive information from the other Member States. During the period of transition, Belgium, Luxembourg or Austria may opt for the introduction of an automatic exchange of information, and in this case countries having exercised this option will no longer apply withholding tax and the corresponding tax revenue sharing. Belgium thus announced that it had decided to apply information exchange as per the ‘Savings’ Directive as from 1 January 2010.
As regards the withholding tax system, the Directive lays down that where the beneficial owner is resident in a Member State other than that in which the paying agent is established, Belgium, Luxembourg and Austria shall levy a withholding tax at a rate of 15% during the first three years of the transitional period, 20% for the subsequent three years and 35% thereafter.
As regards revenue sharing, the Directive lays down that Member States levying withholding tax shall retain 25% of their revenue and transfer 75% of the revenue to the Member State of residence of the beneficial owner of the interest.
As regards double taxation, the Directive lays down that the Member State of residence for tax purposes of the beneficial owner is to ensure the elimination of any double taxation that might result from the imposition of the withholding tax.
Lastly, the Directive does not preclude Member States from levying other types of withholding tax than that referred to above in accordance with their national laws or double-taxation conventions.
As part of the "tax package" aimed at combating harmful tax competition, the European Community (EC) decided to draw up a legislative instrument to overcome existing distortions in the effective taxation of savings income in the form of interest payments.
Savings income in the form of interest payments from debt claims constitutes taxable income for residents of all EU Member States. However, owing to the free movement of capital (Articles 56 to 60 of the Treaty) and the absence of any coordination of national systems for taxing savings income in the form of interest payments, and in particular the treatment of interest received by non-residents, residents of Member States are often able to avoid any form of taxation in their Member State of residence on interest they receive in another Member State. The resulting distortions in the movement of capital between Member States are incompatible with the internal market. Moreover, this situation encourages the evasion of tax on savings income and increases tax pressure on income from less mobile sources such as that derived from work, which adversely affects labour costs and therefore, indirectly, job creation.
This Directive builds on the consensus reached at the Feira European Council of 19 and 20 June 2000 and the subsequent Ecofin Council meetings of 26 and 27 November 2000, 13 December 2001 and 21 January 2003. The consensus lies in the setting up of an automatic exchange of information system between all Member States except for Belgium, Luxembourg and Austria, which will be given a transitional period during which, instead of providing information to the other Member States, they must apply a withholding tax to the savings income covered by this Directive.
|Key terms used in the act|
|Act||Entry into force||Deadline for transposition in the Member States||Official Journal|
|Directive 2003/48/EC [adoption: consultation CNS/2001/0164]|
Initially on 1.1.2005, postponed to 1.7.2005
Date of transposition: 1.1.2004
Date of application: 1.7.2005
OJ L 157 of 26.6.2003
|Amending act(s)||Entry into force||Deadline for transposition in the Member States||Official Journal|
OJ L 168 of 1.5.2004
OJ L 363 of 20.12.2006