EU savings directive

The European Commission is carrying out the first three year review

The European Union put in place the Savings Directive in the middle of 2005 and paying agents must in the main exchange information with Member States when interest is paid to a resident of another Member State. While the majority of Member States opted for this exchange of information a limited number apply a withholding tax to such payments which began at 15% and will rise to 35% before being replaced at some time in the future, at a date to be agreed, with the exchange of information arrangements.

The European Council of Ministers has been putting pressure on the European Commission to pursue the review of the Savings Directive with considerable vigour particularly in the light of the irregularities shown by the Liechtenstein bank ‘scandal’ earlier this year.

There is a special page of the European Commission website which sets out the developments in this area and provides a link to all the background documents.

A report was submitted on 15 September 2008 by the Commission to the European Council of Finance Ministers (ECOFIN).

There is also a summary presentation which is easy to follow and sets out very clearly the identified problems and the potential solutions.

The report itself indicates that progress has been made but the coverage of the scheme is not as wide as had been intended when the project was approved back in 2000. The report recommends amendments to the scheme in the following areas:

• Beneficial ownership;
• Definition of paying agents;
• Treatment of financial instruments which are the equivalent of those that are already explicitly included in the scheme; and
• Some procedural issues.

The procedural issues relate to:

• the identification of beneficial owners (Article 3);
• some procedural elements of the definition of interest payment (Article 6);
• the information reporting by the paying agent (Article 8);
• the exceptions to the withholding tax procedure (Article 13), and
• some changes to Article 18 (review) concerning statistics from Member States.

5 October 2008