In our Update of March this year we reported on the agreement reached at the meeting of the European Council to amend the Savings Tax Directive in line with the European Commission’s recommendations. The amendment extends the scope of the Directive to payments made to trusts and foundations established outside the EU to receive interest payments that would otherwise be subject to EU withholding tax.
Initially the amendment was resisted by Austria and Luxemburg which considered that they would be at a competitive disadvantage to the ‘Five States’, the non-EU Member States of Switzerland, Liechtenstein, Monaco, Andorra and San Marino. Assurances were given that the Five States would implement similar provisions.
During the transitional period Austria and Luxembourg have applied a withholding tax on savings pending the implementation of the full exchange of information regime.
In Luxembourg the transitional provisions will soon be abandoned and with effect from 1st January 2015 there will be an automatic exchange of information. The information exchanged will identify the beneficial owner, the account or other source producing the interest and the amount of interest being paid. It is intended that this information will start to be exchanged from March 2016 for the preceding 2015 calendar year.
The relevant draft legislation was placed before the Luxembourg Parliament in June and is expected to be voted into law shortly.
Austria may elect, as Luxembourg is likely to, to introduce automatic exchange of information during the transitional period and end the current temporary system of withholding tax.
We understand that the EU negotiations with the Five States are progressing. The first two rounds of negotiations have concluded and technical meetings are continuing. The EU hopes that agreement will shortly be reached with the Five States that largely reflects the EU Directive.