Post implementation considerations of the EU taxation of savings income directive

Abstract

As from July 2005, new arrangements came into force across the whole of Europe which effect all individuals who have interest bearing bank accounts and other investments. This matter has been ongoing for about fifteen years now, and is seen as a necessary conclusion to what should have been put in place many years ago. Back in the late 1980's, the Organisation for Economic Co-operation (OECD) tried to tackle the issue of tax avoidance on earnings from savings and investments, but without success. As a result, EU Finance Ministers at the time agreed on a joint action across Europe to eliminate what they deemed 'harmful tax practices' by reducing the opportunities for such tax evasion. The resulting EU Savings Tax Directive requires all EU states to exchange information on interest payments received on savings and investment income of non-resident private individuals, so that these can be taxed at the appropriate rates in their home country. The majority of EU countries will adopt this method of exchange of information. However, Luxembourg, Austria and Belgium have instead elected to deduct a withholding tax at source. Switzerland, Isle of Man and the Channel Islands will also be withholding the tax option although they are not members of the EU.