Select Committee on European Communities Twenty-Eighth Report




With a view to preparing possible Community legislation in this area, the Member States are invited to confirm their agreement that the following elements can together form a basis for a Commission proposal:

I.    A common solution is needed in order to prevent undesirable distortions of competition. Agreement on a minimum solution in the form of a directive is preferable to the continuation of the current situation, which entails tax avoidance, erosion and a loss of revenue.

II.  The scope of this Directive should be limited to interest paid in one Member State to individuals who are not resident for tax purposes in that State but who are resident in another Member State, in order to focus primarily on redressing the possible non-taxation of non-residents.

III.  The proposed Directive should be based on the so-called "co-existence model". Under such a model each Member State will operate either a minimum withholding tax or provide information on savings income to other Member States, in order to ensure at least some effective taxation of non-residents' income from savings within the Community. A Member State may combine the elements.

IV.  Any withholding tax on interest payments made to residents of other Member States will, in principle, be levied by the paying agent. Refinement of this method might be needed in order to counter tax avoidance and evasion more effectively and to avoid double taxation. The arrangements for checking the fiscal residence of beneficiaries will not be cumbersome.

V.  The provisions of the Directive will take into account the need to preserve the competitiveness of European financial markets in a global context. The elements described above should be adopted as widely as possible. To this end Member States will promote their adoption at an international level, and in particular will give active support to their adoption in their dependent or associated territories.

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