Documents considered by the Committee on 21 July 2015 - European Scrutiny Contents


76 Taxation: Savings Directive

Committee's assessment Politically important
Committee's decisionCleared from scrutiny
Document details(a) Draft Directive concerning a staged repeal of the 2003 European Savings Directive; (b) Draft Council Decision on the signing of an amending protocol to a taxation agreement with Switzerland, consequent on repeal of the European Savings Directive;

(c) Draft Council Decision on the conclusion of an amending protocol to a taxation agreement with Switzerland, consequent on repeal of the European Savings Directive

Legal base(a) Article 115 TFEU; —; unanimity; (b) Articles 115, 218(5) and 218(8) TFEU; —; unanimity; (c) Articles 115, 218(6)(b) and 218(8) TFEU; —; unanimity
Department

Document numbers

HM Treasury

(a) (36765), 7373/15, COM(15) 129

(b) (36782), 7759/15 + ADD 1, COM(15) 150

(c) (36783), 7784/15 + ADD 1, COM(15) 151

Summary and Committee's conclusions

76.1 The European Savings Directive requires Member States to disclose interest earned by a resident of another Member State to that Member State, so allowing the relevant Member State to check whether tax has been paid on that interest as appropriate. The EU has an agreement with, amongst other third countries, Switzerland to apply equivalent provisions. In March 2014 an amended European Savings Directive was agreed. This is due to come into force at the beginning of 2017. However, in the meantime a 2011 Directive on administrative cooperation in the field of taxation was amended in December 2014, in order to bring a new global standard for automatic exchange of tax information into EU law. This amended Directive overlaps and goes beyond the European Savings Directive.

76.2 In the light of this duplication, it was agreed by Member States and the Commission during the negotiations on the amended Directive that the European Savings Directive would be repealed. Therefore the Commission proposes a draft Directive, document (a), to apply a phased repeal of the European Savings Directive as the amended Directive on administrative cooperation comes into force. As a result of the proposal there would be no period where Member States have to report ?under both Directives, so reducing the burden on business and ensuring no unnecessary duplication of effort.

76.3 The draft Council Decisions, documents (b) and (c), are to allow the EU to sign and conclude an amending protocol to its agreement with Switzerland to ensure that it is in line with EU and international developments on international tax transparency, in particular in consequence of adoption of the amended Directive on administrative cooperation and the proposed repeal of the European Savings Directive.

76.4 The Government explains to us, given the apparent benefit for UK interests, its support for all three of these proposals.

76.5 Given its constitutional requirements, for Switzerland to be able to commence first exchanges under the new standards by September 2018, the amending protocol needed to be signed by the end of May. So the Government also gave advanced notice that it intended to vote for the Council Directive concerning signature at the ECOFIN Council of 26 May, even though, regrettably, this would override the scrutiny reserve.

76.6 We have no reason to question these practical proposals and clear the documents from scrutiny. Moreover we accept that the Government's action in relation to the scrutiny reserve was in the circumstances justified.

Full details of the documents: (a) Draft Council Directive repealing Council Directive 2003/48/EC: (36765), 7373/15, COM(15) 129; (b) Draft Council Decision on the signing, on behalf of the European Union, of the Amending Protocol to the Agreement between the European Community and the Swiss Confederation providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments: (36782), 7759/15 + ADD 1, COM(15) 150; (c) Draft Council Decision on the conclusion, on behalf of the European Union, of the Amending Protocol to the Agreement between the European Community and the Swiss Confederation providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments: (36783), 7784/15 + ADD 1, COM(15) 151.

Background

76.7 The European Savings Directive (EUSD), Council Directive 2003/48/EC, requires Member States to disclose interest earned by a resident of another Member State to that Member State. This allows the relevant Member State to check whether tax has been paid on that interest as appropriate. The EUSD also contains transitional arrangements, currently applied by two Member States, under which they levy and exchange a withholding tax.

76.8 Following adoption of the EUSD the EU reached agreement with Andorra, Liechtenstein, Monaco, San Marino and Switzerland for these third countries to apply equivalent provisions. Equivalent provisions have also been applied in the dependent territories of the UK and the Netherlands.

76.9 An amendment was agreed to the EUSD by the Member States in March 2014 which expanded the categories of information to be reported in Directive 2014/48/EU. This amended EUSD is due to come into force at the beginning of 2017. However, in the meantime the Directive on administrative cooperation in the field of taxation (DAC), Directive 2011/16/EU, was amended in December 2014. This amended Directive, Council Directive 2014/107/EU, brings the new global standard for automatic exchange of tax information (known as the Common Reporting Standard) into EU law. It overlaps and goes beyond the EUSD.

The documents

76.10 In the light of this duplication, it was agreed by Member States and the Commission during the negotiations on the amended DAC that the EUSD would be repealed. Therefore the Commission proposes a draft Directive, document (a), to apply repeal of the EUSD for 27 Member States, including the UK, from 1 January 2016 when the amended DAC comes into force. In the case of Austria the amended DAC does not come into force until 2017, so the Commission proposes that repeal of the EUSD would not come into force for Austria until 30 June 2017.

76.11 The obligation for paying agents and Member States to pass through information received prior to the repeal to other Member States and the obligations in respect of beneficial owners would continue, to 5 October 2016 and the end of 2016 respectively.

76.12 As a result of the proposal there would be no period where Member States have to report ?under both the EUSD and the amended DAC. This would reduce the burden on business and ensure no unnecessary duplication of effort.

76.13 The draft Council Decisions, documents (b) and (c), are to allow the EU to sign and conclude an amending protocol to its agreement with Switzerland to ensure that it is in line with EU and international developments on international tax transparency, in particular in consequence of adoption of the amended DAC and the proposed repeal of the EUSD. The Commission says that its proposals would minimise costs and administrative burdens both for tax administrations and for economic operators and increase tax transparency in Europe by binding Switzerland to the new international standards.

76.14 Given Swiss constitutional requirements for ratification, for Switzerland to be able to commence first exchanges under the new standards by September 2018, the amending protocol needed to be signed by the end of May.

The Government's view

76.15 In his Explanatory Memorandum of 1 June 2015 about the draft Council Directive, document (a), the Financial Secretary to the Treasury (Mr David Gauke) comments that:

·  repeal of the amended EUSD would result in no loss of information to the UK;

·  the EUSD would be switched off when the DAC is switched on; and

·  this would reduce what would otherwise be additional reporting burdens on UK financial institutions that result from the differences in how information is exchanged and from differences in timing.

76.16 In his Explanatory Memorandum of 27 May 2015 about the draft Council Decisions, documents (b) and (c), the Minister says that:

·  following agreement of the revised DAC, the Commission, on the basis of a previous mandate to update the existing Savings Agreements, has been negotiating with Switzerland, Monaco, Liechtenstein, Andorra and San Marino so that they also adopt the new global standard, together with the Member States;

·  the first to complete these negotiations with the Commission is Switzerland, which would ensure Switzerland is in line with EU and international developments on international tax transparency;

·  these proposals would ensure that Switzerland is in line with EU developments and would increase tax transparency in Europe; and

·  this will help the UK realise the expected yield from these new agreements.

The Minister's letter of 21 May 2015

76.17 In accordance with the House's Scrutiny Reserve Resolution, the Minister wrote apologetically to explain the Government's intention to override the scrutiny reserve in relation to the draft Council Decision concerning signature of the amended agreement, document (b). Noting that these proposals were published after dissolution of the last Parliament and that for Switzerland to be able to commence first exchanges under the new standards by September 2018, the amending protocol needed to be signed by the end of May, the Minister says that:

·  the proposal was to be taken at the ECOFIN Council of 26 May;

·  as it was subject to a unanimous vote UK support was necessary for adoption of the proposal; and

·  the Government intended to vote in favour of the proposal at that Council

76.18 The Minister explains further that, given the constitutional requirements for ratification, meant for Switzerland to be able to commence first exchanges under the new standards by September 2018, the agreement with the EU would need to be signed by the end of May:

·  if this deadline were missed then it was likely the agreements would not, due to Swiss constitutional procedure, be signed for another 12 months;

·  if this lead to a delay in exchange of information, this would delay expected yield for the UK and the other Member States; and

·  given this and the impact that delay would have on the UK national interest, the Government believed it right to support this proposal, while fully recognising that this regrettably represented a scrutiny override.

Previous Committee Reports

None.


 
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