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Summary

After a process of many years, on June 2003 the EU adopted the Directive of taxation on cross-border savings income. The Savings Tax Directive is relevant for individuals who reside in one of the EU Member states. The individual’s nationality is not important but the place of physical residence. The country of emission and the savings currency are not of relevance.
The Savings Tax Directive applies to the EU Member States, associated territories (e.g. Jersey, Guernsey or Isle of Man) as well as other third countries (e.g. Switzerland, Liechtenstein). The implementation of the Directive is scheduled to take effect from July 1, 2005.

Affected income

The definition of the savings interest is broad and contains claims of every kind:

• Periodical coupon payments of bonds
• Interest from trust- and money market assets
• Interests on investment funds
• Capitalized interests on zero-coupon bonds
• Discount bonds
• Accrued interest from selling or redemption of claims
• Accrued interest on accumulation funds

Taxation does not apply to capital gains.

The Directive does not apply to the following kinds of interest:

• Interest earned before July 1, 2005 even if it will be credited or disbursed after 1 July 2005.
• Debt claims issued before March 1, 2001 and which have not increased since March 1, 2002. These claims receive the so called grandfathered status until January 1, 2011.
• Income earned on investments in debt claims not exceeding 15% of the funds assets that underlie interest taxation.
• Accrued interest from selling or redemption of investment funds if less than 40% (less than 25% from January 1, 2011 on) was invested in debt claims that underlie interest taxation.
• Interest tax is not retained from a Swiss issuer (issuer of securities) because interests already underlie the Swiss withholding tax.

The Directive’s scope

All EU Member States – except for Belgium, Luxemburg and Austria – agreed to cooperate in an automatic exchange of information on cross-border interest on savings from July 1, 2005 on. Each financial institution that operates as a paying agent delivers the information on all interest payments to the authorities of the EU Member States in which the final beneficiary resides.

Belgium, Luxemburg, and Austria will apply a withholding tax: customers in these countries can choose between their country-specific withholding tax or voluntary disclosure.

Also, according to the agreement between Switzerland and the EU, Switzerland will apply a withholding tax. The amount of tax withheld will be 15% at the beginning, 20% between July 1, 2008 and June 30, 2011, and 35% from July 1, 2011 on. The withheld tax will be transferred to the Swiss tax authorities. The agreement assures discretion for customers of Swiss banks.

A Challenge for the financial industry

The implementation of the EU Savings Directive represents a challenge for the financial industry, particularly for the financial data processing systems. The systems for customer management have to ensure that the customers affected by the EU Savings tax can be clearly identified as well as the financial instruments on which the interest income subject to the EU Directive will be disbursed.

EU interest tax: Automation and Reporting

AIM Software’s GAIN DataDesktop offers simple integration of all relevant data. The GAIN DataDesktop can automatically process all data fields related to the EU Directive on taxation of savings income and prepares them for exporting or reporting.

Available functions

• Simple extraction and recoding of the EUDirective taxation of savings income information
• Analysis and preparation of the delivered data
• Automated exporting to banking software applications or other target systems with predominantly ready made interfaces.
• Ready to use daily reporting of EU taxation of savings income data.