11 TAXATION
(30169)
15733/08
+ ADDs 1-2
COM(08) 727
| Draft Council Directive amending Directive 2003/48/EC on taxation of savings
income in the form of interest payments
|
| Legal base |
Article 94 EC; consultation; unanimity |
| Department | HM Treasury
|
| Basis of consideration |
Minister's letter of 23 November 2009 |
| Previous Committee Report |
HC 19-ii (2008-09), chapter 9 (17 December 2008)
|
| To be discussed in Council
| 2 December 2009 |
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
11.1 Council Directive 2003/48/EC, the Directive
on Taxation of Savings Income, or more commonly the Savings Directive,
aims to ensure the effective taxation of personal savings income
on accounts held in countries other than the taxpayer's country
of residence. It adopts the principle of exchange of information
between tax authorities as the means to achieve this. It is complemented
by a series of agreements with third countries and territories.[31]
As a transition measure, some jurisdictions[32]
apply a withholding tax, which they share with the taxpayer's
home country, instead of participating in exchange of information.
The Directive requires the Commission to report to the Council
every three years on how the measure has been operating.
11.2 In September 2008 the Commission published the
first Report to meet this requirement. In addition to a short
summary of the transposition and implementation of the Savings
Directive and a short economic evaluation of its impact, the Report
was dedicated to considering possible amendments to the Directive
to resolve perceived difficulties.[33]
11.3 In November 2008 the Commission published this
draft Directive to amend the Savings Directive. The main amendments
in the draft Directive are:
- extension of the scope by asking paying agents
to use the information available to them for anti-money laundering
purposes to identify whether an interest payment to certain entities
or arrangements outside the Community is actually being routed
to an individual resident in another Member State. A proposed
annex includes a list of entities and arrangements in non-Community
jurisdictions to be covered by these arrangements;
- changes to establishing and updating the permanent
address of the beneficial owner for tax purposes;
- changes to the definition of "paying agent
upon receipt". A proposed annex introduces a list of entities
and arrangements to be treated as paying agents upon receipt;
- extension of the scope to cover interest and
substantially equivalent income deriving from securities similar
or equivalent to savings products already covered, a broader range
of collective investment funds and low risk, interest-based, life
insurance contracts;
- changes to the reporting procedures for joint
accounts and other cases of shared beneficial ownership; and
- changes to the procedures relating to withholding
tax, including the abolition of exemption certificates in favour
of the voluntary disclosure procedure.
11.4 When we considered the proposal, in December
2008, we heard that:
- the Government welcomed the Commission's proposal
and considered it a significant step forward in improving exchange
of information to combat tax evasion;
- the Government thought that it appeared to strike
a reasonable balance between extending the scope of the present
Directive and minimising the burden to industry; and
- the Commission found extension of the Directive
to cover income from all financial products inappropriate.
We noted that the proposal therefore met some of
the concerns expressed by industry representatives during the
Government's consultation on the Commission Report. However, we
noted also the concerns expressed about a need for:
- revised agreements with third countries and territories
associated with the Directive; and
- similar agreements with other financial centres,
such as Hong Kong and Singapore.
We said that before considering the document further
we wanted to hear how these matters were to be addressed. Meanwhile
the draft Directive remained under scrutiny.[34]
The Minister's letter
11.5 The Financial Secretary to the Treasury (Mr
Stephen Timms) writes to inform us that there has been good progress
under the Czech and Swedish Presidencies in developing the text
of the draft Directive, saying that a considerable amount of attention
has been given to ensuring that the amended Directive will work
in practice and that there is clarity for industry and tax administrations
about the information to be collected and exchanged.
11.6 The Minister says that:
- the scope of the draft Directive remains broadly
as proposed by the Commission, capturing income substantially
equivalent to savings interest while avoiding disproportionate
burdens on industry;
- the Government particularly welcomes inclusion
of certain grandfathering provisions, which should reduce reporting
burdens;
- in the important area of income from life insurance
contracts, which the proposal would bring into the scope of the
amended Directive, the Government has successfully argued for
an approach that gives greater flexibly to Member States to tailor
reporting requirements to their domestic reporting arrangements
— this should help to reduce the potential burdens on the
UK insurance industry;
- in relation to revision of agreements with third
countries and territories participating in the Savings Directive
framework and similar agreements with other financial centres,
the Commission has begun consultations with Switzerland, Liechtenstein,
Andorra, Monaco and San Marino, with a view to revising their
respective savings agreements to bring them into line with the
amended Directive;
- all appear to be willing to enter negotiations
once the Savings Directive has been adopted by the Council;
- the Government anticipates that the Crown Dependencies
and Overseas Territories that participate in the Savings Directive
framework will also revise their respective agreements in line
with the new Directive;
- the draft Directive allows a period of three
years between entry into force and the date on which its provisions
take effect;
- this period should be long enough for the revised
agreements to be concluded — as in the case of the original
Directive, the amended Directive and associated agreements could
then be brought into effect at the same time;
- the Commission has continued to encourage Singapore
and Hong Kong to participate in the Savings Directive framework
— while both are reluctant to make such a commitment they
have, over the past year, made firm commitments to meet international
standards of exchange of information on request under bilateral
agreements;
- this development has taken place in the context
of the G20 initiative to promote transparency and exchange of
information — their commitments were made ahead of the G20
London Summit in April 2009;
- the Government views this as a positive development
that will help promote a level playing for the financial sector.
- the Commission has also been in negotiations
with Iceland and Norway, both of whom have expressed strong interest
in joining the Savings Directive framework; and
- in addition there have been informal consultations
with Bermuda and there is every prospect that further discussions
will take place with that jurisdiction.
11.7 The Minister concludes that as a result of the
progress that has been made on amending the Savings Directive,
the Presidency intends to seek political agreement on the draft
text at the ECOFIN Council on 2 December 2009.
Conclusion
11.8 We are grateful to the Minister for this
account of developments on the draft Directive itself and on agreements
with other jurisdictions. We have no further questions to ask
and now clear the document.
31 Andorra, Liechtenstein, Monaco, San Marino, Switzerland,
Jersey, Guernsey, Isle of Man, Aruba, Anguilla, British Virgin
Islands, Cayman Islands, Turks and Caicos Islands, Montserrat
and Netherlands Antilles. Back
32
Austria, Belgium, Luxembourg and the majority of non-EU partners. Back
33
(29962) 13124/08 + ADD 1: see HC 19-ii (2008-09), chapter 9 (17
December 2008). Back
34
See headnote. Back
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