EU Savings Directive, effective 1 July 2005

The EU Savings Directive aims to ensure that individuals tax resident within the European Union (EU) are subject to effective taxation on any interest income (savings income) received by them. In order to achieve this, a system of automatic exchange of information between EU Member States has been agreed. A number of Member States (namely, Belgium, Austria and Luxembourg), as well as certain ‘dependent territories’ (excluding the Cayman Islands) and ‘third countries’, will initially apply a withholding tax regime as part of a transitional arrangement under the Directive (see list of affected countries below). The Directive applies only to cross-border payments; only payments made by a paying agent located in a covered jurisdiction to a beneficiary in another EU state are affected.

‘Interest’ includes income from debt claims of any kind, including income from bank accounts, corporate and government bonds, debentures and other similar securities. The definition of interest is extended to include interest accrued or capitalised on the sale, refund or redemption of such debt claims, and original issue discount and redemption premiums. There are specific provisions to extend the definition of interest to distributions from, and proceeds of sales or redemptions of, certain collective investment schemes (funds) that hold interest-bearing assets. UCITS, primarily, will be affected by this.

The key person in the Directive with whom primary responsibility rests is the ‘paying agent’. It is the paying agent that is regarded as paying or securing the benefit of the interest for an individual. It must report details of interest payments to EU tax resident individual investors to its local tax authority. That tax authority then passes the information on to the tax authorities in the country of residence of the beneficiary. As stated above, certain jurisdictions, due to bank secrecy laws about information reporting, will apply a withholding tax instead of information reporting for a transitional period, but with an option for the investor to elect for reporting.

The Directive is effective from 1 July 2005 and the first reports required under it will cover the period from that date to 31 December 2005 (with filings due by 31 March 2006).

EU Member States		Dependent territories	Third countries
Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy	Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovak Republic Slovenia Spain Sweden United Kingdom (including Gibraltar)	Anguilla Aruba British Virgin Islands Cayman Islands Guernsey Isle of Man Jersey Montserrat Netherlands Antilles Turks and Caicos Islands	Andorra Liechtenstein Monaco San Marino Switzerland