Progress on the EU Savings Tax Directive

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The EU issued the following press release tonight:

TAXATION OF SAVINGS – Council conclusions

The Council took note of an informal interim assessment by the Commission of the functioning of directive 2003/48/EC on the taxation of savings income. It held an exchange of views. It adopted the following conclusions:

“The Council calls on the Commission to submit the report pursuant to Article 18 of the Directive on the taxation of savings income in the form of interest payments by 30 September 2008 at the latest, to be followed by specific proposals based on the report. Member States are asked to provide the Commission with the necessary statistical and other data.”

Article 18 of the directive requires the Commission to report every three years on the directive’s implementation and, where appropriate, to propose any amendments that prove necessary in order to ensure effective taxation of savings income and remove distortions of competition.

At its meeting on 4 March, the Council asked the Commission to accelerate preparation of its first three-year report, and as an interim step, the Commission agreed to present an informal assessment.

The savings tax directive requires member states to exchange information on interest paid in one member state to individual savers resident in another member state, so as to allow the interest to be taxed in the member state of tax residence.

For a transitional period, Belgium, Luxembourg and Austria may instead impose a withholding tax on interest paid to individual savers resident in other member states. The tax rate is 15% for the first three years of the transitional period, 20% for the subsequent three years and 35% thereafter. The three member states must transfer 75% of the tax revenue to the member state of tax residence, retaining 25% to cover their own administrative costs.

The directive covers the taxation of savings income in the form of interest payments, including income from deposit accounts, government securities and corporate bonds, as well as collective undertakings that invest more than 40% of their assets in debt securities (more than 25% as from 2011). The directive has been applied since 1 July 2005.

Savings tax measures that are equivalent to these of the directive are also applied in Andorra, Liechtenstein, Monaco, San Marino and Switzerland under specific agreements concluded with the EU. The same measures are also applied in ten dependent and associated territories of the Netherlands and the United Kingdom (Guernsey, Jersey, the Isle of Man and seven Caribbean territories) under specific agreements concluded with each of the member states.

The Council will examine in greater detail the functioning of the directive once it has received the Commission’s full report.

I call it that a serious opportunity for progress.