March 2014

Agreement about the Savings Directive has been reached

Tax Alert

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At the European Council meeting of 20 and 21 March, 2014, all EU Member States came to a political agreement on the text of the directive amending the European Union Savings Tax Directive (Savings Directive). The agreement has been achieved after progress was made in negotiations on similar agreements with third countries, including Switzerland, in order to ensure a level playing field in terms of exchange of information. The European Council has expressed satisfaction with the progress reported by the EU Commission. The European Council, requested the negotiations to be completed by the end of the year and has called on third countries concerned to also commit to the implementation of the common standard for reporting proposed by the OECD and agreed by the G20.

This is a major step towards “tax transparency” within the EU while having assurances that others will abide by the same rules.

The proposed amendments, which would apply as from 1 January 2017, represent material changes in scope to the Savings Directive as payments to certain legal entities and payments of interest equivalents will be brought within the regime. The main changes and impacts on the Luxembourg market can be summed up as follows:

  • Luxembourg Part ll SICAVs will be “in scope” as well as all collective investment funds or schemes established in the EU independently of their legal form
  • Inclusion of life insurance contracts first subscribed on or after 1 July 2014 containing a guarantee of income return or more than 40% (subsequently 25%) of whose performance is linked to income from debt claims or equivalent income
  • Application of a “look-through approach” in order to prevent structuring allowing individuals to circumvent the Savings Directive by using an interposed entity or legal arrangement established in a jurisdiction where taxation of income paid to this entity or arrangement is not ensured (an indicative list of entities and legal arrangements in third country jurisdiction concerned by this measure will be drawn up)
  • Tightening of the definition of paying agents upon receipt (so-called “residual entities”) within the EU
  • Prevention of circumvention of the Savings Directive through artificial channeling of an interest payment via an economic operator established outside the EU by considering the latters as paying agents

The Luxembourg government’s Bill introducing automatic exchange of information under the Savings Directive in lieu of withholding tax on interest was also presented to Parliament on 18th March. Once enacted, this will apply to interest payments from 1 January 2015.

In connection with this matter, the EC has recently released a Frequently Asked Questions document covering the EU savings taxation rules and savings agreements with third countries. Of particular interest is the explicit statement that ”the EU will align both the Savings Directive & the Directive on Administrative Cooperation with the OECD’s plans for a global standard for automatic exchange of information between tax administrations, well in advance of implementation.”[1]

This is broadly good news for financial institutions as it will provide a level of consistency across the regulatory landscape. Financial institutions should continue to monitor the progress of these plans and focus on how alignment will be realized.

Should you have any queries or comments, please contact your usual EY contact.


Download the Tax Alert (pdf, 68kb).

[1] For additional information, see EY Luxembourg Tax Alert, OECD releases Common Reporting Standard, issued 20 February 2014.