On 24 March 2014 the Council of the European Union adopted a Directive amending the provisions of the existing EU Savings Directive. The purpose is to reflect changes to savings products and investor behaviour in recent years, and to eliminate opportunities for the evasion of tax.Background
The Savings Directive took effect in 2005. It requires banks and certain other financial institutions (‘paying agents’) to furnish the tax authorities in their own Member State with details of cross-border interest payments to EU-resident individuals, and makes provision for the tax authorities of Member States to exchange information, in order to ensure that income from other Member States is correctly taxed in the individual’s state of residence. As a transitional measure a small number of EU states – now only Austria and Luxembourg – are permitted, instead, to levy a withholding tax at (currently) 35%. Luxembourg has declared its intention of moving to information exchange from 2015.
Independent agreements effectively extend the Directive to the non-EU countries of Andorra, Liechtenstein, Monaco, San Marino and Switzerland, and to certain dependent or associated territories of the UK and the Netherlands such as the Crown dependencies of Jersey, Guernsey and the Isle of Man. Of these, some (including Andorra, Jersey, Monaco and Switzerland) apply a withholding tax while others exchange information.The changes
The main changes are to bring within the scope of the reporting requirements:
- certain circumstances where non-taxable companies or legal arrangements are interposed between the payer of the interest and the individual who is the beneficial owner of it. (Some trust arrangements where a beneficiary is absolutely entitled to the income are already caught under the current rules);
- the returns on financial products that have similar characteristics to debts but are not legally classified as such, such as fixed-return and guaranteed-return securities and life insurance wrapper products; and
- income from additional classes of investment funds.
The changes are considered in more detail in our new factsheet
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