European Union Savings Directive

The European Union has agreed to make improvements to the Savings Directive

The European Union has accepted the improvement proposals that were put forward by the European Commission in October and which we reported on at that time.

These proposals are designed to improve the working of the Directive so that it achieves its purpose of ensuring that residents of the EU Member States pay tax on their interest income.

In practice the Savings Directive seeks to achieve this by requiring paying agents, in the main, to exchange information with Member States when interest is paid to a resident of another Member State. 

The majority of Member States opted for this exchange of information but 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.

Changes to the Savings Directive

The detailed changes which are now to be made are as follows:

Taxation of interest payments

The Commission proposes to improve the Directive so as to better ensure taxation of interest payments which are channelled through intermediate tax-exempted structures.

  • For interest payments made by paying agents established in the EU to certain intermediate structures established outside the EU, the Commission proposes that those paying agents subject to anti-money laundering obligations are required to use the information already available to them within this framework to establish the actual beneficial owner of these payments. When the latter is an individual resident in another EU Member State, the paying agent would consider the payment concerned as directly made to this individual.
  • For interest payments made to certain untaxed intermediate structures established within the EU, including some non-charitable trusts and foundations, those structures will be always obliged to apply the provisions of the Directive (exchange of information or withholding tax) upon receipt of any interest payment from any upstream economic operator wherever established.

Extend the scope of the Directive

The Commission proposes to extend the scope of the Directive to income obtained from investments in some innovative financial products with capital protection (less than 5 per cent risk coverage) and in certain life insurance products.

Exchange of information in Austria, Belgium or Luxembourg

The proposal brings a major reduction of administrative burden for individuals who opt for exchange of information in Austria, Belgium or Luxembourg where they receive interest payments and therefore claim exemption from withholding tax. 

The proposal asks that the paying agent will directly report information to the tax authorities, at the request of the individual who authorises it, in place of levying the withholding tax.

Level playing field

The Commission proposes to ensure a level playing field between all investment funds or schemes, independently of their legal form.

Technical improvements

It proposes technical improvements which are beneficial for the activity of paying agents, such as a clearer treatment of investment funds established in a country different from the one of the paying agent and a clearer guidance for Member States in order to avoid possible cases of duplication of paying agent responsibilities.

A number of documents have been published by the Commission and can be accessed by using the hyperlinks below:

Technical questions paper

The technical questions paper explains how the concept of ‘paying agent upon receipt’ is to be made more effective. This is designed to prevent individuals circumventing the Directive by receiving their interest via an intermediary body which is not a normal paying agent. 

This paper also contains a number of examples clarifying the circumstances when the new provisions will apply.

16 November 2008