Ref. Ares(2017)2711276 - 30/05/2017
1. INTRODUCTION
The fifth meeting of the Commission Expert Working Group on Taxation of Savings
(hereinafter the 'Group') was attended by the appointed experts representing banking,
accountants, asset management, insurance, investment funds and professional trustees. The
meeting was chaired by Mr Philip Kermode, Director of Analyses and Tax Policies in
Directorate General Taxation and Customs Union of the Commission. The Chair explained
that the mandate of the Group has been extended until December 31, 2010. The extended
mandate will include the following items which will be discussed in today's meeting:
(i) Possible suggestions for ensuring that both the Proposal, when adopted by the Council, and
the domestic implementing rules will be faithful to the Commission's aim to limit the
administrative burden on market operators;
ii) Assisting the Commission in the task of establishing the collection of appropriate statistics
from market operators, with a view to allowing a more accurate cost benefit analysis at the
occasion of the next review of the directive in 2011;
iii) Any other business.
The Chair explained that the work of the Group will be discussed in the various meeting to be
held in the Council on the subject of the Commission Proposal for amending Council
Directive 2003/48/EC on taxation of savings income in the form of interest payments
('Proposal'). The amendments contained in the Proposal will be discussed today in order to
gauge the reaction of members of the Group.
The Chair noted that the meeting will also include a discussion of the comments provided by
the Comité Europeén des Assurances (CEA) and the European Banking Federation (EBF).
2. PRESENTATION OF THE AMENDING PROPOSAL
The Group by Commission services was informed that the Council unanimously called on the
Commission to continue with more precise drafting of the Proposal and requested the Czech
Presidency to report back to the Council by 9 June with its conclusions. As the legal base for
the Proposal is Article 94 of the Treaty (Internal Market), it is necessary to consult the
European Parliament (meeting due on 23 March in Strasbourg). The possible adoption of the
Proposal by Parliament is foreseen in April. Additionally, the European Social and Economic
Committee should also be consulted.
The Commission services explained that they would go through the comparative table that
was distributed in advance of the meeting. The table highlighted the differences per article
between the current Directive and the Proposal. The following amendments were highlighted:
Beneficial Owner (B.O.): EU paying agents are to make use of the information already
available to them under the provisions of the Anti-Money Laundering Directive ('AMLD')
regarding the identity of the beneficial owner (look-through approach for individuals resident
in the EU) for certain types of entities and arrangements (Annex I) established in jurisdictions
outside the EU.
2
Paying Agent inside the EU: a clearer definition of 'paying agent on receipt' in order that
structures (including trusts, transparent entities…) know when they should apply the
provisions of the Directive. These structures are listed in Annex III on the basis that they are
not taxed on their income under the general rules for taxation applicable in the Member State
in which the entity or arrangement is established.
Definition of interest payments: extending the scope of the Directive to include (i) securities
which are equivalent to debt claims, because virtually all (95%) of the capital invested is
protected, and because the conditions on return on capital are defined at the issuing date; (ii)
life insurance contracts whose performance is strictly linked to income from debt claims or
equivalent income when they provide for very low 'biometric' (mortality or disability) risk
coverage (lower than 5%) in relation to the capital insured.
The following were proposed in order to ensure a level playing field for
Investment funds:
(i) replace the reference to Directive 85/611/EEC with a reference to the registration of the
undertaking/investment fund or scheme in accordance with the rules of any Member State; (ii)
application of the same rules not only to all UCITS, but also to all non-UCITS (independently
of their legal form); (iii) income from all non-EU investment funds is also covered.
The Commission also proposes the following amendments to improve the efficiency and to
provide legal certainty:
The identification of beneficial owners and the establishment of their residence (incl.
Annex II);
Refinement to the definition of paying agent upon distribution Art 4(1);
Procedural elements of the definition of interest payments (home country rule to
facilitate the activity of paying agents (art 6));
Information reporting by paying agents (e.g. additional information on the features of
payments to joint accounts);
Facilitate the access of beneficial owners to the exceptions to the withholding tax
procedure (art 13), while ensuring that their Member State of residence is correctly
informed.
The Chair noted that the amending proposal needed to take into account the differing views of
Member States regarding the scope and the application of the Directive.
An expert representing
EFSA (the European Forum of Securities Associations) was
concerned about the practicalities of the Proposal and not whether the Proposal had gone too
far. It is important to determine what works and what does not work and to take into account
the costs related to these amendments.
is pleased to see that the Czech Presidency is
currently reviewing the provisions which effectively grandfather innovative financial
instruments and life insurance contracts issued or subscribed after 1 December 2008. The
industry needs more time than this and such a cut-off date should ideally coincide with the
start of a new calendar year. It should in any case be clearly signalled to the market in
3
advance. The expert agreed with the comments of EBF that the Proposal as it now stands
could lead to an emigration of clients and businesses outside the EU. It could actually lead to
an increase in fraud and evasion if the provisions of the Proposal are not accepted in
agreements with third countries/tax havens. The political pressure so far has been put on EU
operators rather than on non-EU operators.
An expert representing
EBF stated that without specific provisions, there could be a
divergence between EU Member States and the 15 dependent and associated territories if
differences arise between the Directive and the relevant Agreements. Ideally, we should give
an acceptable period for the implementation of the Proposal and learn lessons from the
implementation of the first Savings Directive – there should be at least two years lead time for
market operators and guidance should be provided for paying agents.
An expert representing
STEP (Society of Trust and Estate Practitioners) shared both the
practical and conceptual concerns of the previous speakers. The expert was concerned that the
definition contained in Article 2 of the Proposal 'the name and the permanent address of the
person who primarily holds legal title and primarily manages its property and income' is not
clear as often these criteria cannot be attributed to one person. Are obligations imposed on
economic operators based on documents provided to them or when they know? Knowledge is
a higher requirement than evidence in the form of documents. The expert considered that
'reasonable belief' is a better term to use. There is still no definition of a trust or a similar
arrangement in the Proposal. The definition of a trust can differ from one jurisdiction to
another. Finally, if there is a definition then how will this be translated into the languages of
the other Member States? The expert noted that the Anti-Money Laundering Directive
(AMLD) has not yet been implemented in many Member States. The 25% criteria1 for
identifying the beneficial owner (B.O.) did not mean anything and has no meaning in trust
law. That is because the B.O. can change from one year to the next depending on what type of
income is involved.
The Chair indicated that the aim of the Proposal is to use information from the AMLD – it
will not have an influence on how the Savings Directive is applied. The aim is to have
information on the beneficial owner not the trustee.
An expert from
EBF stated that it had already been noted by them in the first meeting of this
expert group that, under article 18 of the Savings Directive, an evaluation of the effectiveness
should be made between the withholding tax and the exchange of information regimes. By
suppressing the tax certificate option in article 13, the Commission is opening up the
discussion on the merit of the withholding tax system.
The Chair stressed that it is not in the remit of the Group to answer questions of a political
nature, i.e. the choice between a withholding tax system and an exchange of information
system.
1 Article 3 (6) (b) in the case of legal entities, such as foundations, and legal arrangements, such as trusts, which
administer and distribute funds: (i) where the beneficiaries have already been determined, the natural person (s)
who is the beneficiary of 25% or more of the property of a legal arrangement or entity; (ii) where the individuals
that benefit from the legal arrangement or entity have yet to be determined, the class of persons in whose main
interest the legal arrangement or entity is set up or operates; (iii) the natural person(s) who exercises control over
25£% or more of the property of a legal arrangement or entity;
4
The Chair noted that the annexes would need constant updating and would therefore like to
ascertain the views of the experts on the use of a comitology?
The expert from
EFSA noted that from past experience it could be problematic for Member
States to accept a comitology. In a meeting in December 2008 with contacts from the City
Group, many of them objected to having a comitology for the Savings Directive. We should
make clear that it is very limited and confined to narrow areas in order to convince Member
States of its benefit.
The expert from
FEE (Fédération des Experts Comptables Européens) noted that although
there are a number of inconsistencies in Annex I,
fully supported the annexes to the
Directive especially since some jurisdictions may introduce new types of vehicles in order to
circumvent the Directive. The Association will follow up with the Commission to ensure that
Annex III is comprehensive. When the Proposal refers to 'taxed on its profits' it is important to
define what we mean by taxed: taxed according to a domestic tax law or according to the
OECD MTC.
will follow up with the direct tax working party of FEE for their comments
on the Proposal.
The Chair noted that the committee structure on comitology does not decide this
autonomously but with the approval of the Commission. It could be difficult for Member
States to accept a comitology process for updating Annex III as it only requires qualified
majority voting rather than unanimity of Member States as is required in the field of taxation.
Being able to update the annexes is necessary to be able to have more flexibility and ensure
the effectiveness of the Directive.
An expert from
STEP acknowledged the need for comitology, however, it not only updates
but also supplements the list of paying agents on receipt contained in Annex III. These are
wide ranging powers and go beyond merely keeping the Annex up to date.
An expert from
EBF queried the French translation of the Proposal where only the term 'mise
à jour' is used in connection with Annex III. In French, this simply means an update rather
than an addition to the list of paying agents on receipt.
The expert from
EFSA is concerned that qualified majority voting could lead to the detriment
of the competitive position of market operators in the EU compared to third countries. If it is
just a matter of 'efficacy' then this would be acceptable.
An expert from
STEP raised the problem of unfair competition with competitors outside the
EU – for example, tax havens like Delaware in the United States.
considers that the
Commission should discuss the application of the Savings Directive with such jurisdictions.
would like to know the opinion of the Council on these matters? The expert noted that
there are more companies registered in Delaware than in the Cayman Islands. Putting in place
an exchange of information mechanism with the British Virgin Islands or Delaware will be
futile as they do not officially collect data for commercial reasons. There has to be
information available in the first place before information on exchange can be effective.
The Chair noted that the exchange of information (bilateral agreements) will decide how far
we can go. It is in the off-shore jurisdictions where there is a real risk rather than just a
perceived risk. The G20 meeting of 2 April should provide guidance on the developments on
anti-abuse matters in the field of taxation.
5
The Chair wanted to address some of the practical points raised by the experts:
(i) Grandfathering: - at this point, it is too early to conclude on this issue;
(ii) For third countries, there are on going discussions with off-shore jurisdictions like
Singapore, Macao and Hong Kong. The EU is currently in talks with Norway concerning the
Directive and its application;
(iii) Regarding the 13 dependent territories which are required to apply the Directive, it is not
envisaged that there will be any obstacles to implementing the provisions of the Proposal to
the agreements already in place. There should be further progress in these discussions as a
result of the G20 meeting;
(iv) In the EU, the Mutual Assistance Directive will affect bank secrecy throughout the EU;
(v) In regard to widening the scope of the Directive to include new products (life
insurance/investment products), he wanted to know how this could be done in a different way
to that contained in the Proposal. The aim of the Proposal is to capture products that are in
direct competition to products already in the scope of the current Directive. We would be
interested to see comments from the insurance industry as to how this can be achieved which
are different to those contained in the Proposal;
(vi) With regard to giving market operators enough time to prepare for the implementation of
the Proposal, he wanted to underline that it is a cross-border Directive and as such it should be
implemented simultaneously across Member States. In addition, any amendments will entail
fewer changes than implementing the Directive for the first time;
(vii) With regard to the comment of the expert from STEP, any contribution would be
welcome as the Proposal has to be transposed into national legislations. If we are too precise
then this could lead to difficulties in the transposition therefore we need to get the balance
right. Ideally we would have preferred to review the Mutual Assistance Directive at the same
time as the Savings Directive. He welcomed the remarks of EFAMA regarding the level
playing field.
An expert representing AMICE (the Association of Mutual Insurers and Insurance
Cooperatives in Europe) emphasised the need for guidance and a reasonable time in which
market operators can implement the new amendments – a legislation time period of 5 years is
ideal. There is a concern about the doubling up of reporting obligations. Furthermore, the
expert agreed with the contribution from CEA that there should be a level playing field
between life insurance products and other financial instruments; insurers have to guarantee
capital and have capital backing for their assets which are not required in the case of
investment funds. The expert also indicated that the costs and benefits of the Proposal should
be more clearly taken into account. Finally, any definition of life insurance included in the
Proposal should not include voluntary pension insurance contributions.
An expert representing CEA did not consider that the exchange of information on insurance
products in the Proposal had taken into account the existing national legislations of Member
States. It therefore risks imposing a double administrative burden on insurance operators. The
provisions of the Mutual Assistance Directive can also be used for these purposes. There
should not be two different definitions for life insurance – one a legal definition and the other
6
for tax purposes. Furthermore, the taxation of life insurance varies considerably between
Member States therefore it could be problematic to include the product in a tax directive. As
already stated by the expert from AMICE, there are material differences between insurance
products and investment funds and as such insurance products should not be included in the
scope of the Directive.
An expert from
AILO (the Association of Life Offices) was against extending the scope of
the Directive to include insurance products and claims that the Proposal would fail any
cost/benefit analysis. Their association had done a survey which indicates that the costs
outweigh any potential benefit to Member States in terms of tax revenue. According to their
analyses, this insurance income would not be taxable in many Member States; there would be
a huge amount of insurance income to be reported but no tax to be paid on it. The tax
treatment of life insurance varies considerably between Member States. The Proposal would
therefore not be an appropriate instrument to ensure the effective taxation of insurance
benefits.
The expert explained that currently the life insurance industry has to comply with national
legislation for reporting requirements and considers that there is no material benefit of
extending the coverage to the Savings Directive for information exchange purposes. Often
life insurance market operators do not know the identity of the beneficial owner and cannot
trace the unnamed beneficial owner. In the case of life insurance for trusts, the policy owner is
not often known by the paying agent. Finally, the Mutual Assistance Directive can provide all
the information that Member States may require about the beneficial owners of life insurance.
In regard to a level playing field, the expert stated that the insurance industry does not make
interest payments and insurance operators have to meet solvency and underwriting obligations
regarding underlying assets and accounting requirements. Solvency obligations are applied to
the insurance industry but not to the investment fund industry. Unlike investment funds, in
life insurance contracts there is no link between the benefits and the underlying assets.
In regard to KYC requirements – how does the paying agents know if the information should
be updated?
The expert promised to provide a matrix which describes the status of life insurance polices in
the EU and comments from his Trade association on the Proposal.
An expert from
AMICE considered that most insurance products will fall outside the scope of
the Proposal but acknowledged that there are life insurance products currently on the market
which are not genuine life insurance.
considered that the 5% is too high as a threshold for
triggering an insurance product to fall within the scope of the Proposal. The expert envisaged
that this definition would include most unit linked insurance contracts. There could be
problems in determining what constitutes an interest payment and whether this would be
taxable during the life of the contact or at the end of the contract.
An expert from
AIMA (the Alternative Investment Management Association) claimed that
many life insurance products could be qualified as savings or equivalent products; it is better
to define what kinds of product are in and what products are outside the scope of the Directive
due to their characteristics rather than to which product sector they belong.
considered that
the objection that insurance products are taxed differently between Member States is
irrelevant. The aim of the Directive is to provide exchange of information.
7
An expert from
EFAMA (the European Fund and Asset Management Association Ltd.)
welcomed the level playing field as currently there is competition between investment funds
and the certain life insurance products. The expert would prefer some terms to be better
defined, for example 'Biometric risk'. There should be the same application date to the new
investment funds and life insurance products which will be included within the scope of the
Directive.
The Chair wanted to address some of the points raised by the experts:
(i) In regard to Article 6 (
'fully linked to interest or income of the kinds referred to in points
(a), (aa), (b), (c) and (d)'), the Commission services indicated that some Member States prefer
replacing it with 'mainly' – the word 'fully' is considered by some to be too formal although
changing to mainly would widen the scope of the Directive to cover many more insurance
products than is currently envisaged. We require a balance.
(ii) In regard to the point of the expert from AILO that the life insurance operator may not
know the identity of the beneficial owner, as with trusts it is only the paying agent with the
direct relationship with the beneficial owner that has the burden of making the reporting
requirements under the Directive.
(iii) In regard to the statistics provided by CEA, the Commission services underlined the
importance that the Proposal should not include transactions that are already covered under
national reporting requirements. For example, if a policy holder changes its residence, does
the insurance operator have reporting requirements to the new state of residence of the policy
holder?
The expert from
CEA stated that the figures provided by CEA were global and applied to the
whole industry including policy holders in another Member State.
The Commission services (DG MARKT) pointed out that under the Life Insurance Directive,
an operator is deemed as being cross-border if it has operations in another Member State. It
will be obliged to fulfil reporting requirements to that Member State. However, cross-border
transactions do not include a consumer going from one Member State to another and buying
the product there. The latter would not be defined as a cross-border transaction under the Life
Insurance Directive and would therefore not be reported to the Member State of the policy
holder.
The expert from
STEP noted that under the Life Insurance Directive, cross-border is where
the operator is going. The Savings Directive relates to tax residence even where there is no
cross-border involvement by the bank or the operator.
The expert from
AILO confirmed that the Life Insurance Directive only applies to insurance
operators who cross-border. Some Member States, like Spain, require insurance operators to
report information on policy holders that are non resident. Nevertheless, the expert considered
that applying the Directive to non-residents, as with the Savings Directive, would be
prohibitive and would lead to massive duplication.
will follow up with his members to see
what the situation is in Member States.
8
The expert from
EFAMA considered that it was important to raise the concern in the meeting.
The expert believed that it is unlikely that there will be an exchange of information reported
to national authorities when a life insurance operator makes a payment to a foreign resident.
stated that if a Belgian resident acquired life insurance in Luxemburg then there would be
no obligation to report this transaction to the Belgian authorities.
The expert from
CEA replied that in general there should be exchange of information
regarding such transactions but cannot give a specific reply in the case of Belgium and
Luxemburg. CEA is reviewing the definition of insurance products given in the Proposal and
intends to come up with a definition from the viewpoint of the market. It is time consuming to
do this which is why we have not yet come up with an alternative solution.
An expert from
EFAMA explained that to be equitable, insurance products as described
should be included in the proposal and the same rules should be applied to them as with
investment products. The expert is concerned that maintaining the word 'fully' would mean
that many life insurance products that are equivalent to savings products would be outside the
scope of the Directive.
The Chair stated that the Commission services are aware of the problem of red tape. The tax
implication is irrelevant – it is the exchange of information that is relevant not if the income is
taxed.
The expert from
AILO is concerned about the definition of life insurance used in the Proposal
and whether there are inconsistencies between this definition and definitions for life insurance
contained in other pieces of EU legislation i.e. the Life Insurance Directive.
was also
concerned that the Proposal would affect life insurance contracts issued after December 1,
2008 where the information needed to adhere to the Proposal in its current from will not be
available. The expert wanted to know whether the Commission has discovered any cases of
abuse by life insurance operators?
The Commission services replied that they have no information available on this. However,
he considered that it is important to look prospectively and prevent this type of abuse arising.
An expert from
EFAMA did not see the relevance of applying grandfathering to insurance
contracts as they are not grossed-up and have no early redemption clause (as in the case of
bonds in the Directive).
also would like to know if the grandfathering clause would apply
to non-UCITS.
An expert from
AMICE suggested that insurance products that are abusive should not be
defined as 'life insurance products'. Under national legislations, there are quite clear
definitions of what is and is not life insurance. A clear definition should be included in the
Proposal (under FI legislation pension insurance contributions are categorised as life
insurance).
An expert from
CEA noted it is forbidden for an insurer to sell products other than insurance.
Life insurance is defined at a national level. It is not appropriate to include a definition of life
insurance in a tax directive.
9
The expert from
AMICE wanted to know as far as a life insurance definition is concerned, if
we should have one definition for this Directive or should we think of a definition for a wider
application.
The Chair agreed to raise this issue in the Council.
The expert from
STEP wanted to know if it was the function of this group to convey its
opinions to the Council, or just to help the Commission with its Proposal? Is it possible that
the Council could participate in the meetings of the Group, and not just as observers?
The Chair noted that institutionally, the Council is not obliged to take into account the
deliberations of the Group as it is an informal one. However, it is important that the views of
market operators are expressed, especially in regard to the administrative burden. When there
is blockage in the discussion between Member States then the Presidency and the
Commission will take the initiative.
3. APPROPRIATE STATISTICS
The Commission services cited difficulties during the original mandate of the Group of
gathering data to use in the review process. It would have been preferable to have collected
data on a more comprehensive basis to use in the impact assessment of the Proposal.
There were no clear results from the first questionnaire issued in 2007 with regard to the cost
of implementing the Savings Directive. Furthermore, the data collected was not
representative of all market operators. He suggested that it may be more appropriate to narrow
down the questionnaire by including only questions 5 and 6 which relate to the costs of
running the system (fixed and variable costs).
It may be important to break down costs per beneficial owner and per product and the
incremental costs of adapting systems to meet the requirements of the Proposal. What
incremental costs arise from the implementing the look-through approach? What effect does
the number of intermediaries have on the costs? What modifications to the questions are
needed in order for your members to respond to the questionnaire?
An expert from
AMICE noted that it would be necessary to provide IT specialists with
detailed specifications in order to assess the costs of setting up a system or upgrading an
existing one. Furthermore, there are other costs that are even more difficult to quantify like
audit costs or inspections from the tax authorities.
The expert from
EFSA agreed with the comment of the expert from AMICE. The assessment
should take into account both prospective and retrospective changes.
regrets that the
members of his association were unable to give much feedback to the first questionnaire.
suggests that market research specialists may be able to get more accurate data.
An expert from
EBF agreed and noted that it is very difficult to get answers from their
members. It may be more useful to obtain estimates from specialists. A second expert from
EBF noted that EBF will set up a specific working group for better regulation which looked at
the issue of impact assessment.
confirmed that it was difficult for members to provide an
adequate assessment of costs on which to base an impact assessment.
10
The expert from
EFSA noted that it may not be that important to get a precise estimate of
costs – a rough estimate could be sufficient to give you all the information you need in order
to see the magnitude of incremental costs.
The expert from
EFAMA noted that this depends on the information technology changes and
the technology platform that a market operator has. This in itself may not be sufficient to
extrapolate costs to a whole industry.
An expert from
CEA noted that any questionnaire should focus on what is possible: questions
should be kept to a minimum; the assessment of costs should be prospective rather than
retrospective.
The Chair suggested that it is up for the members of the Group to decide the form and the
contents of the survey. He suggests that it would be useful for both market operators and
Member States to have data to assess for any subsequent review of the Directive.
The expert from
ISDA (International Swaps and Derivatives Association) highlighted that
some new operators will now be included within the scope of the Directive like certain
investment funds and trusts. These operators will most likely not have the technology
platforms to be able to capture this data from scratch.
An expert from
STEP noted that they are willing to send the questionnaire off to their
members.
The expert from
AILO considered that a survey is a good idea to ensure a comprehensive
impact assessment.
association has already performed a cost-benefit analysis and found
that the costs are much higher than the benefits. The mandate of the Group stipulates that a
cost/benefit analyses is performed before any legislation is amended.
The Chair noted that for the amending proposal, the Commission Services carried out an
impact assessment, but the assessment was incomplete due to the lack of suitable data
therefore estimations were provided. The Commission performs an impact assessment on
proposed legislation in order to improve the coherence of the decision making process in the
Commission and in the Council. However, not every proposal is required to undergo an
impact assessment. We need data to defend the Proposal in front of the impact assessment
board. It is in the interests of market operators that they provide data in order for the
assessment of the Proposal to be comprehensive.
An expert from
STEP noted that the trust industry is diverse – many of the members of STEP
are carrying on business in a very small way – it would be quite difficult to give you an idea
of costs because the trust industry is not standardised.
The expert from
EFSA noted that they would be able to get at least some members to respond
if another questionnaire or study was launched.
An expert from
EBF noted that the Information technology costs can be found out but human
resource costs should also be involved in the data collection process in order to work out what
additional costs are involved in the Savings Directive from time sheets.
11
4. CONCLUSIONS
The Chair encouraged the experts to provide written contributions on the Proposal. The
experts were reminded that the next ECOFIN meeting takes place on June 9 and their
contributions could be used for discussion purposes in the Council.
The Chair indicated that Commission services will come up with a detailed and structured
agenda for the next meeting of the Group. We will also inform them about the Council
discussions on the Mutual Assistance Directive. We should ask the SE presidency if they
would like to participate as an observer in the meeting. We will also see whether we can
launch a study on the compliance costs of implementing the Directive. He asked the members
of the group for their comments in writing so that they can be put on the website.
A provisional date for the next meeting will be confirmed at a later stage.
12