10 December 2013

ECOFIN Council results: Taxation

Taxation of savings income

The Council discussed a draft directive aimed at strengthening EU rules on the taxation of savings income (17096/13). The amendments to directive 2003/48/EC are intended to prevent the directive's circumvention, reflecting changes to savings products and developments in investor behaviour since it came into force in 2005.

The aim is to enlarge the directive's scope to include all types of savings income, and products that generate interest or equivalent income. It would include life insurance contracts, as well as a broader coverage of investment funds. And using a "look-through" approach, tax authorities would be required to take reasonable steps to establish the identity of beneficial owners.

The European Council in May called for the amended directive to be adopted before the end of the year.

The Council’s discussion confirmed broad support for the text. However, Luxembourg and Austria maintained reservations. Taking note of the comments made, the presidency will report to the European Council that the amended directive could not be adopted within the deadline set.

Directive 2003/48/EC requires the Member States to exchange information automatically so as to enable interest payments made in one country to residents of other Member States to be taxed in accordance with the laws of the state of tax residence. During a transitional period, Luxembourg and Austria can impose a withholding tax on interest paid to savers resident in other Member States, instead of providing information on savers1.

Based on article 115 of the Treaty on the Functioning of the European Union, the directive requires unanimity for adoption by the Council, after consulting the European Parliament.

Under agreements with the EU signed in 2004, Switzerland, Liechtenstein, Monaco, Andorra and San Marino apply measures equivalent to those provided for in the directive. Guernsey, Jersey, the Isle of Man and seven Caribbean territories do likewise, under bilateral agreements concluded with each of the Member States.

Equivalent measures in those agreements involve either automatic exchange of information or a withholding tax on interest paid to savers resident in the EU. A proportion of the revenue accrued from the withholding tax is transferred to the country of the saver's tax residence.

In May, the Council mandated the Commission to negotiate updated agreements with Switzerland, Liechtenstein, Monaco, Andorra and San Marino to reflect the changes to the EU directive.

Reports to the European Council

The Council endorsed two sixth-monthly reports to the European Council:

• a report on tax issues; and
• a report on tax issues by finance ministers of countries participating in the Euro Plus Pact.

Code of Conduct (Business Taxation)

The Council adopted the following conclusions:

"With regard to the Code of Conduct (Business Taxation), the Council:

• welcomes the progress achieved by the Code Group during the Lithuanian Presidency as set out in its report (doc. 16656/13 FISC 226);
• asks the Group to continue monitoring standstill and the implementation of the rollback as well as its work under the Work Package 2011;
• invites the Commission to continue and conclude the dialogue with Switzerland by 30 June 2014, as set out in the report;
• invites the Group to continue its consideration of the draft guidance on Hybrid Entity and Hybrid Permanent Establishment Mismatches;
• invites the Group to analyse the third criterion of the Code of Conduct as contained in the existing mandate by the end of June 2014;
• invites the Group to assess or consider all patent boxes in the EU, including those already assessed or considered before, by the end of 2014, ensuring consistency with the principle of equal treatment, also against the background of international developments, including those in relation to the OECD BEPS initiative;
• invites the Group to report back on its work to the Council by the end of the Greek Presidency."

Full results

Commissioner Šemeta statement

© European Council