Swiss Figures Expose Flaws In EU Savings Tax Directive
Evidence, if any more was needed, that investors have easily outwitted European
tax collectors by placing their assets out of reach of the EU Savings Tax Directive
has been further borne out this week after Switzerland revealed withholding
tax revenues that were far below expectations. In the first six months of the operation of the legislation, which came into
effect on July 1, 2005, Swiss institutions withheld and passed on to the tax
authority about EUR100 million (US$128 million) from the savings of individuals
resident in EU member states. On the surface it seems implausible that Switzerland, the world's largest
private banking centre with more than 500 major banking institutions and home
to an estimated 35% of the world's private wealth, could collect such a relatively
small amount; but given the relative ease with which the directive can be circumvented,
the figures are not really surprising. The most obvious route is for investors to place their assets in jurisdictions
not covered by the directive; anecdotal evidence suggests that Dubai, Hong Kong
and Singapore have been major beneficiaries. However, there are a number of
investment instruments that have, for whatever reason, not been included within
the scope of the directive. Other major banking centres have also reported lowly withholding tax revenues:
Luxembourg EUR48 million, Jersey EUR13 million, Belgium EUR9.7 million, Guernsey
EUR4.5 million and Liechtenstein EUR2.5 million. The system of tax retention applies to all interest payments covered by the
agreement, made by a paying agent on Swiss territory to an individual resident
for tax purposes in an EU member state. Initially the rate is set at 15%, rising
to 35% from 2011. Three-quarters of the revenues from this system of tax retention
go to the beneficiary member states, the remainder goes to Switzerland and the
cantons. In the case of Switzerland, the largest portion of the withholding tax revenues
were remitted to the Italian and German tax authorities. According to a Financial Times report, European Commissioner for Taxation,
Laszlo Kovacs, has ordered a review of the operation of the directive with a
view to clearer definition of investment funds and clarifying the treatment of interest payments
made to trusts. “The Commission is aware of causes for concern relating to the interpretation
of the directive," a spokeswoman for the Tax Commissioner was quoted as
stating by the FT. However, Dieter Leutwyler of Switzerland's federal finance ministry has reportedly
pointed out that consultations with the EU over "substantive changes"
to the directive could only happen after July 2011 or when both sides agreed
to such talks. A comprehensive report in our Intelligence Report series examining offshore confidentiality is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report1.asp
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