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EC reviews Savings Taxation Directive

20 May 2008
Categories: News , Admin
Loopholes allow individuals to set up foundations that circumvent rules

The European Commission is reviewing the EU Savings Taxation Directive as it seems that loopholes exist within it, which allow individuals to set up foundations to circumvent the rules.

The EC has issued a paper which outlines the problems and gives possible solutions. The key issues that the commission have said need to be clarified are:

  • Whether there is a wish to go beyond the current definition of beneficial owner for the purposes of the Savings Taxation Directive and extend its scope to interest payments made to all legal persons, entities and arrangements, or rather maintain the current definition of beneficial owner and supplement the current possibilities with a 'look-through' approach for payments leaving EU territory;
  • Whether drawing up a positive list of the entities concerned would be an appropriate solution to make the 'paying agent on receipt' mechanism work better;
  • Whether paying agent obligations under the directive could be imposed on certain non-transparent entities and arrangements at the moment of the first distribution(s) of cash or other liquid assets following on any interest payment to these entities/arrangements;
  • Whether a well defined 'substance over form' principle should be enshrined in the directive in order to ensure, as far as possible, that it will apply to all financial products that are equivalent to debt claims in terms of risk, flexibility and agreed return on investment, in order to close possible loopholes and prevent market distortions that can arise irrespective of the system adopted (exchange of information versus transitional withholding tax) for implementing the directive;
  • Whether and, if so, how, as for the purpose described in the above point, it would be appropriate to improve the definition of investment funds and similar vehicles within Article 6 of the directive;
  • Whether the directive is, or is not, an appropriate legal instrument to accommodate rules on cooperation between Member States for enabling taxation of types of investment income which are substantially different from interest, such as dividends, capital gains and 'out payments' from those life insurance contracts and pension schemes where the mortality or longevity risk covered is not merely ancillary.


Categories: News , Admin
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