Friday, January 28, 2011

New briefing on current status of the EU Savings Tax Directive

Markus Meinzer has prepared a new briefing on the European Union's Savings Tax Directive. You can download the briefing here.

Key points to draw from the briefing.

1. The current directive, which came into force in 2005, has four deficiencies:

"Firstly, only interest payments are covered, leaving out dividends and royalties. Second, only payments to individuals (or natural persons) are covered, omitting companies and trusts (legal persons). Third, it is limited geographically to the EU, although equivalent measures have been established in separate treaties (multilateral or bilateral) with 15 additional jurisdictions enjoying close ties to the EU. Fourth, Luxembourg and Austria negotiated a transitional exclusion from the automatic information exchange process by substituting a withholding tax of currently 20% (from July 2011 it will be 35%) on the interest payments to the concerned non-residents."

2. These deficiencies are recognised and attempts are underway to address at least two of the four weaknesses:

"A proposal for a revised directive was submitted by the European Commission to the EU-Council in November 2009 . This proposal addresses two out of the four limitations, those relating to legal entities and those relating to geographical scope."

3. Resistance on the part of European tax havens to information exchange is reducing:

"The transitional period for the exceptional withholding tax will end once the EU reaches agreement with Switzerland, Liechtenstein, San Marino, Monaco and Andorra to exchange information upon request conforming to the weak OECD-2002 model (the model is here , our analysis of it here ). These countries have recently withdrawn their general objections to this OECD-standard. The way has been opened to move ahead with achieving an agreement with these jurisdictions. The agreement with Liechtenstein is already drafted."

4. Austria and Luxembourg remain intransigent in their political support for their tax cheating industries:

"The principal obstacle at this moment lies with Austria and Luxembourg blocking the EU-Council from mandating the European Commission to open negotiations with Andorra, Monaco, San Marino and Switzerland. This blocking tactic has meant that the draft negotiation mandate presented by the European Commission to the EU-Council is currently help-up in the relevant working group of the EU-Council."

5. Swiss moves to negotiate bilateral agreements with Germany and the United Kingdom pose new risks to progress:

"A particular risk has arisen as a result of Switzerland offering a final withholding tax as a substitute for information exchange to selected European countries, notably Germany and UK. Preliminary negotiations have started between these three countries: if a deal is struck on this proposal the prospects of a coordinated European position for an agreement with Switzerland would diminish, implying that the ‘transitional period’ of the EUSTD might never end."

Download the briefing here.


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