General corporate matters: Proposal on taxation of cross-border savings income

United Kingdom

The Commission has presented to the Council of Ministers a new proposal for a Directive to ensure minimum effective taxation of savings income within the EU. The proposal aims to tackle distortions within the single market arising from non-taxation of cross-border interest payments to individuals.

A 'withholding tax' of at least 20% would apply to interest payments in one EU country made to individuals resident in another EU country. In accordance with the "co-existence model" each Member State will have the choice between levying a withholding tax on the relevant income or alternatively providing information on that income to the competent tax authorities in the other Member State which could then levy the appropriate taxes. The Member State in which interest is paid must choose between the two options.

Depending on which option is selected, the individual who places his savings in another

Member State would either know that the tax authorities in his home state would be informed about the interest received or he would receive the payment of interest reduced by the withholding tax. Alternatively, the individual could choose to personally inform his home state about the interest on his savings in another Member State. He could then apply for a certificate attesting to this from his tax authorities and the institution paying the interest would not withhold tax on the interest if provided with the certificate.

Not all types of interest income are included in this harmonisation measure. The proposal covers only taxation of cross-border savings income in the form of interest paid in one Member State to individuals who are resident in other Member States. The Directive would not cover, for example, interest income paid to residents of third countries. Implementation of the proposed measures would rely on co-operation of the paying agents, normally banks, who would be obliged either to provide information on the interest payments or to pay out the interest.