EC Presents Proposal On Non-Resident Savings Taxation

by Ulrika Lomas, Tax-News.com, Brussels

20 July 2001

The long running debate within the European Union regarding the taxation of cross-border interest payments appears to be drawing to an close, with the announcement on Wednesday of a new proposed directive. Under the terms of the proposal, member states will exchange information with each other regarding individuals that have non-resident savings accounts in their country. The proposal has a broad scope, and covers interest of every kind, including bonds.

However, the EC announced that for a transitional period of seven years, Luxembourg, Belgium and Austria will be allowed to apply a withholding tax rather than supply information, at a rate of 15% for the first three years, and 20% for the subsequent period. The majority of the Commission had originally favoured a cross-European withholding tax, but that proposal met with opposition from the United Kingdom, which feared that such an arrangement would drive business away from London's thriving multi-billion pound bond market. As unanimous support is required for the implementation of common European fiscal measures, the original draft directive ended up on the scrap heap.

So far at least, everyone seems to be relatively happy with the new proposal, and the EU Internal Market Commissioner, Frits Bolkestein commented in a statement that: 'In making the proposal, the commission has given effect to the consensus reached by member states that all citizens resident in the EU should pay the tax due on their savings income.' However, it is early days. 'The onus is now on the member states to work intensively to meet the December 2002 deadline for agreement on this proposal,' Mr Bolkestein added.

Recommended