Brussels, 13/05/2008 (Agence Europe) - In response to a request put to him early March by European finance ministers, László Kovács, European Taxation Commissioner, will present a progress report to the Ecofin Council on Wednesday 14 May on implementation of Directive 2003/48/EC on savings taxation (see EUROPE 9615). He will propose elements for reflection on ways to remedy the failings noted in application of European rules, failings that have in fact been known since the rules were adopted. Above all, these improvements concern extension of the scope of the directive to financial products not covered but able to be considered as similar to physical savings and to payments made to legal persons. Improvements are also envisaged to the definition and obligations of paying agents (e.g. a bank), namely economic operators who pay interest or attribute the payment of interest to the immediate benefit of a beneficiary. At this stage, the Commission simply wants discussions at the Ecofin Council to provide it with guidelines in order to continue fine-tuning its analysis. This autumn, it will present a full report on implementation of the European legislation that may be accompanied by a specific legislative proposal. The question is not that of knowing whether the Commission will propose a new directive but when it will do so, it is said within the European institution.
According to the current rules of Directive 2003/48/EC, savings taxation only applies to natural persons and does not concern payments made to legal persons (e.g. foundations). In a working document forwarded to the Council, the Commission states that experience shows that the exclusion of all legal entities from the scope of application allows individuals to circumvent application of the directive by creating companies or other legal entities in another country. Wishing to avoid making the administrative burden of paying agents any heavier, the Commission suggests that these agents should be under an obligation to seek the identity of the individual beneficiaries hiding behind legal entities receiving interest, but only those entities located in the five third countries (Andorra, Liechtenstein, Monaco, San Marino and Switzerland) that have adopted rules equivalent to Directive 2003/48/EC.
It is also easy to circumvent taxation of savings income by investing in innovative financial products (derived products, investment in speculative funds and pension funds, life-insurance products, etc.) not covered by European legislation. The Commission takes the view that member states may envisage setting up a positive list of innovative products that generate financial gain and that have characteristics comparable to savings by natural persons. It also states that the present limitation of the directive on revenue gained through undertakings for collective investment in transferable securities is considered as illogical by many member states and by some experts. Such a situation is likely to entail competition distortion within the internal market. Other countries of the EU would like to see cooperation between national authorities extended to dividends and added value generated by the holding or sale of assets, either under the present directive or in line with Directive 77/799/EEC on mutual assistance.
According to the directive, any entity established in a member state to which interest is paid or for which interest is secured for the benefit of the beneficial owner shall also be considered a paying agent upon such payment or securing of such payment. The Commission notes that application of this principle has been less effective than the Council had expected. In order to improve legal security without imposing an excessively heavy administrative burden on the economic operators concerned, the Commission evokes the possibility of setting up a positive list of entities that member states consider covered by the principle in question. This list could be placed in annex to the savings taxation directive and its updating could be entrusted to an ad hoc committee closely following the development of financial markets. It would have the advantage, says the Commission, of being easy to present to third countries, as especially to certain Asian countries, likely to cooperate with the EU in the field of savings taxation.
Interest from savings by natural persons in a member state other than the state of residence where they pay taxes (see EUROPE 8981) have been taxed in the EU since mid-2005. Paying agents paying these interests must point this out to the tax authorities of the beneficiaries' member state responsible for taxing these interests. Not wishing to reveal the identity of non-resident savers, Austria, Belgium and Luxembourg benefit from a transitional period during which they levy withholding tax (15% until mid-2008, 20% until mid-2011 and 35% after that) on sums placed on their territory. Five third countries apply this same system on the basis of bilateral treaties signed with the EU. At the beginning of the year, the press reported on large amounts placed in Liechtenstein by Europeans in a form allowing them to circumvent European legislation. (M.B.)