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The European Union's (EU's) Lithuanian Presidency has said that it hopes to reach an agreement with member states on proposed changes to the Savings Tax Directive before the end of the year.
Attendees at last week's meeting of the European Union Council of Economic and Finance Ministers (ECOFIN) had a "very good political discussion" on the issue, according to Council chair Rimantas Šadžius. But the reality is that they failed to reach agreement. A document released by the Presidency after the meeting claims nonetheless that the Council confirmed its "broad support for the amended Directive."
The Directive must be unanimously adopted by the Council, after it has consulted the European Parliament.
The Directive requires paying agents to report interest income received by taxpayers resident in other EU member states. Member states must automatically exchange information that will enable interest payments made in one country to residents of another to be taxed in accordance with the laws of the state of tax residence.
Luxembourg and Austria are currently able to impose a withholding tax on such interest, instead of providing the information at hand. Luxembourg has announced that as of January 1, 2015, it will no longer make use of these transitional arrangements, and will comply with the Directive's rules on information exchange.
Agreements with Switzerland, Liechtenstein, Monaco, Andorra, and San Marino are designed to secure the application of measures equivalent to those provided for in the Directive.
The European Commission wants to better ensure the taxation of interest payments which are channelled through immediate tax-exempt structures. It has recommended that tax authorities be required to establish the identity of beneficial owners, by taking a "look-through" approach.
The Commission has also called for the Directive's scope to be expanded, to encompass income equivalent to interest obtained through investments in certain innovative financial products.
Tax Commissioner Algirdas Šemeta has made clear his belief that the amended Directive should be adopted without delay. He told the meeting: "All states acknowledge the new reality of automatic exchange of information and the importance having accurate and complete information on real beneficial owners. And all acknowledge that the scope of the information to be exchanged cannot be as narrowly defined as it is today. In fact, where formal negotiations have started, we see a willingness to examine an even wider scope than that of the Savings text before you today.
"More generally, it is clear that the era of banking secrecy is coming to an end. Countries such as Switzerland, Liechtenstein and Singapore have committed to FATCA agreements with the US. And Switzerland has signed the OECD multilateral convention on administrative assistance."
Šemeta urged that Luxembourg and Austria "recognize the changes that have occurred," and stressed that the EU "must not be left behind" as global initiatives toward greater transparency gather pace.
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