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EU Set To Unveil Savings Tax Directive Changes

by Ulrika Lomas,, Brussels

30 October 2008

The European Commission will on November 12 present a proposal to amend the Savings Tax Directive in an attempt to ensure "more effective taxation of savings income and eliminate undesirable loopholes which facilitate tax evasion and tax fraud."

The Commission announced last Friday that amendments to the directive, which have been under discussion for some time, are now all the more urgent "in light of recent events in the area of tax evasion."

According to a Commission report to the European Council last month, the directive in its current form "has proven effective within the limits set by its scope." However, this evaluation cited the need for certain amendments to the legislation in order to close possible loopholes and to limit the administrative burden on paying agents.

In a speech given to the European Platform for 3rd Country Finance Centres on October 14, Tax Commissioner Laszlo Kovacs said that the EC is “committed to promoting the co-operation against tax fraud and tax evasion."

"The sustainable development of all economies relies on the capacity of national tax administrations to effectively exchange information. Increasing the transparency of tax systems makes them less vulnerable for use in tax evasion schemes. This does not mean protecting high tax rates in certain countries, but exactly the opposite, as an increased tax compliance makes easier the lowering of the tax burden for all the honest taxpayers," he said.

“In return for its partners' acceptance of these principles, the EU is prepared to offer certain incentives. A concrete example of what we can provide is the Governance incentive tranche under the 10th European Development Fund (EDF). Countries eligible for development aid, and who take detailed commitments to the principles of good governance in the tax area, may receive an additional allocation depending on the quality of their commitment. A number of Caribbean and Pacific countries have taken such commitments, some others have simply refused to do so," he added.

The savings tax directive applies in 42 jurisdictions: 27 Member states, 5 non EU countries (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) and 10 dependent and associated non-EU territories (Anguilla, Aruba, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Montserrat, the Netherlands Antilles as well as the Turks and Caicos Islands).

Following the request of the Ecofin Council, the European Commission has started discussions with selected Asian financial centres, namely Hong Kong, Singapore and Macao. Formal negotiations will also start shortly with Norway, at its request, whilst other jurisdictions like Bermuda and Iceland have shown interest in participating in the savings taxation arrangements.

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