Recently the European Commission provided a discussion of frequently asked questions (FAQs) concerning the EU Savings Taxation Directive. The Savings Directive aims to address cross-border tax evasion by creating an information exchange system for tax authorities to help identify individuals that receive savings income in an EU Member State other than their own.
The proposed changes to the directive would enlarge the scope of the directive to include new types of savings income and products that generate interest or equivalent income (e.g., life insurance contracts as well as a broader coverage of investment funds). Tax authorities, using a “look-through” approach, would be required to take steps to identify who is benefiting from interest payments. The core of the EU Savings Taxation Directive is the principle of automatic exchange of information. Accordingly, EU Member States collect data on the income from savings of non-resident individuals, and automatically provide this data to the authorities where the individual resides.
- Currently 26 EU Member States apply the automatic exchange of information.
- Two Member States—Austria and Luxembourg—are being allowed, for a transitional period, to apply a withholding tax instead of engaging in the automatic exchange of information.
- From 2015, Luxembourg has announced that will participate in the automatic exchange of information and it will therefore not need to apply a withholding tax to the income.
- The rate of withholding tax is currently 35%.
- The EU has savings taxation agreements with five neighboring countries (Switzerland, Andorra, Monaco, Lichtenstein, and San Marino).
- In February 2014, the G20 finance ministers endorsed elements for a new global standard for automatic exchange of information between tax administrations. The EU will align the Savings Directive with the global initiative.
The exchange of tax information is seen by the EU and the OECD as an important tool in combating artificial tax avoidance and tax evasion. The OECD is currently encouraging all countries to adhere to the international standards on transparency and information exchange.
