Withholding the credit

01 June 2006 / Barry Hallam

Issue: 4060 / Categories: Comment & Analysis , Capital Gains

BARRY HALLAM investigates the impact of the European Savings Directive on the completion of tax returns. Official guidance seems not to correspond with the legislation.

THE EUROPEAN SAVINGS Directive ('the directive') eventually came into force on 1 July 2005. The directive was first proposed in 1989 and finally agreed in June 2003 (Council Directive 2003/48/EC) and was originally due to take effect from 1 January 2005. Its implementation was delayed because of the time taken for various other territories to sign bilateral agreements which mirror the directive.

The aim of the directive is to bring about effective taxation of interest payments in the beneficial owner's Member State of residence for tax purposes. The directive seeks to do this through the exchange of information concerning interest payments between Member States.

Most Member States will automatically exchange information regarding interest payments. Under Article 11 of the directive and the various bilateral agreements paying agents in some territories will for a transitional period be deducting a special withholding tax (SWT) from interest payments rather...

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