Ref. Ares(2017)2412604 - 11/05/2017
EUROPEAN COMMISSION
DIRECTORATE-GENERAL TAXATION AND CUSTOMS UNION
ANALYSIS AND TAX POLICIES
Direct tax legislation
Brussels, 9 April 2008
Taxud-E2 –
000701\minutes\meeting\20080401
S U M M A R Y R E C O R D O F T H E M E E T I N G O F T H E
W O R K I N G P A R T Y I V O N D I R E C T T A X A T I O N
Review of the operation of the Council Directive 2003/48/EC on
taxation of income from savings
Held in Brussels on 1 April 2008
B-1049 Brussels / Belgium. Room: MO59 /
Telephone: central (32-2) 299.11.11; direct line (32-2)
Fax: (32-2)
E-Ma
il: xxxxxxxx@xx.xxxxxx.xx.
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1. INTRODUCTION
The meeting of the Commission Working Party IV on Direct Taxation was attended by the
appointed experts representing the Member States and was chaired by
at the Directorate General Taxation and Customs Union
of the Commission. The Chair welcomed the participants and presented agenda of the
meeting.
The first part of the meeting was devoted to follow-up work by EU Clearing and Settlement
Fiscal Compliance Experts' Group (hereinafter 'FISCO') on clearing and settlement whereas
the second part dealt with the discussions on the review of the Savings Directive and
exchange of letters between the Commission and Swiss Confederation on the application of
the savings agreement.
2. FOLLOW-UP TO WORK ON CLEARING AND SETTLEMENT
The Commission services presented the findings and proposals by FISCO Group on the
removal of fiscal compliance barriers to the post-trading of EU cross-border securities
transactions. In particular, it addressed the proposals as provided for in the 2nd report of
FISCO Group on the removal of Giovannini Barriers 11 and 12 on withholding and
transaction tax procedure. On the basis of the findings and proposals by FISCO Group, the
Commission services intend to adopt Commission recommendation on withholding and
transaction tax procedure at the beginning of 2009.
FISCO Group has concluded that regimes requiring transaction tax to be collected by
domestic settlement service providers may prevent foreign custodians from accepting
securities subject to such transaction tax. In that regard it was suggested to ensure a level
playing field for settlement service providers. With regard to simplification of withholding tax
procedure FISCO Group inter alia recommends:
Harmonisation of EU tax relief procedures
Abolishing the requirement of paper-form certification and allowing intermediaries to
make use of modern technology to pass information in electronic format
Establishing of one-stop-shop in order to centralise refund procedures to one tax authority
Establishing one-time limit for a refund application.
The Commission services briefly addressed global dimension of tax relief procedures noting
that joint EU-OECD Working Group "Improving Procedures for Tax Relief for Cross-border
Investors" has been recently established.
As the Commission proposals will serve as the basis for a Council recommendation, DE and
ES suggested examining proposals in a joint meeting of FISCO Group and tax experts.
Moreover EL suggested discussing any tax issues at the meeting of Council Working Party on
Tax Questions – Direct Taxation. In response the Commission services confirmed openness
for further consultations with all stakeholders. However, discussions at the Council Working
Party could be held following the adoption of Commission recommendation.
Before concluding the discussion on the clearing and settlement, the Chair invited experts to
submit written comments on the proposals made in the 2nd FISCO report by 30 of April at the
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latest. The Commission services will keep MS informed on the follow-up work, including
work of joint EU-OECD Working Group.
3. DISCUSSION ON THE REVIEW OF THE SAVINGS DIRECTIVE
The Chair shortly introduced with the background documents summarising opinions
expressed during 2007 in the Commission Experts Working Group on Taxation of Savings
(hereinafter ‘EUSD Expert Group’) and comments from the MS on the questions concerning
the review of the operation of the Directive.
gave a brief overview on Commission
services' working document "Review of the operation of the Council Directive 2003/48/EC on
taxation of income from savings" (hereinafter ‘working document’). The experts were invited
to submit written comments on the working document as well as any clarifications on the
Commission services’ draft summary document on the comments received from the MS.
3.1. DISCUSSION ON THE ROOM DOCUMENT
During the meeting room document on the review of the Directive (hereinafter ‘room
document’) was briefly introduced by DE. It recalled the discussion at the ECOFIN held on 5
March 2008 on the need to improve the effectiveness of the Directive. In that respect the room
document suggests the following:
Extending the scope of the Directive to all types of investment income, especially life
insurance products, derivatives and structured products
Inclusion of the legal vehicles that can be used for avoiding the Directive such as offshore
companies, trusts, specialised investment funds and foundations
Extending the geographical scope to the third countries by negotiating measures having
equivalent effect to the Directive.
With regard to the 3rd point of the room document BE recalled the discussion in ECOFIN
held on 5 March 2008 concerning the difficulty of extending measures having equivalent
effect to the Directive to the 3rd country financial centres as long as their domestic tax
systems are not changed. It noted that suggestions under the 1st point of the room document
concerning the extension of the scope of the Directive to life insurance products, non-UCITS
and structured financial products are the most realistic ones provided that unanimity is
reached by the MS. Nevertheless, it questioned the reference in the 1st paragraph that risk
capital is not subject to effective taxation noting that discrepancies derive from the lack of
harmonisation of the MS’ tax systems rather than lack of effective taxation as such. In that
regard the Chair clarified that the Directive aims at effective taxation according to domestic
tax laws of the MS. With regard to question on follow-up work she responded that the
Commission staff working document will be presented at the Council Working Party on Tax
Questions – Direct Taxation held on 5 May 2008. Proposal of the amendments to the
Directive is due to be presented on the 3rd or 4th quarter of 2008.
DK, ES, FR, IT and NL expressed general support for DE suggestions. In that regard FR
urged the Commission services to speed up the work on the review of the Directive in order to
present a proposal as soon as possible. It underlined the necessity to extend the scope of the
Directive to other legal vehicles such as trusts and foundations used to avoid obligations
under the Directive as well as to cover life insurance products, derivatives and non-UCITS.
ES insisted on establishing a level playing field for financial market operators indicating that
exclusion of certain financial products may lead to financial instruments market distortions.
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NL added that extension of the scope of the Directive to all legal entities could be the most
radical and the simplest solution at the same time.
IT underlined the importance of applying the Directive uniformly by all MS. Both IT and DK
observed that extension of the scope of the Directive shall give raise to broader exchange of
information by all MS rather than imposition of withholding tax.
UK noted that any amendments of the Directive shall be effective and simple as possible. In
that regard it would favour clearer solutions than the principle “substance over form” such as
broadening the definition of savings/investment income. It underlined the advantage of having
a clear cut savings income definition over rather unclear notion of investment income.
Further, the scope of the Directive could be extended to certain legal entities used as savings
vehicles in order to tackle tax evasion. Finally, it noted that extension of the scope of the
Directive to all kinds of insurance products rather than insurance products giving raise to
interest income would make the reporting by paying agents less burdensome.
On chapter 6 of the working document LU disagreed with the Commission services’ analysis
that withholding tax system is not equivalent to exchange of information system. It observed
that OECD standards cannot be automatically applied within the Community. With regard to
follow-up work it suggested continuation of work in the framework of the review of the
Mutual Assistance Directive. Finally, it highlighted the importance of prior cost and benefit
analysis allowing the measuring the effectiveness of the two systems in operation (exchange
of information against withholding tax) before any proposals to amend the Directive are
made.
AT confirmed its openness for further discussions on the extension of the scope of the
Directive to legal entities. It added that exchange of information and withholding tax systems
can be applied in parallel.
With regard to the review process of the Directive PL suggested proceeding in two phases: in
the short term to work on improving effectiveness of the Directive within the present scope
and in the long term to work on extending the scope of the Directive.
3.2. DISCUSSION ON THE WORKING DOCUMENT
3.2.1. Beneficial ownership
On chapter 2.1., the Commission services' working document suggests extending the scope of
the Directive to payments which are made to entities and legal arrangements whose beneficial
owner is an EU resident individual as identified under the Third Anti Money Laundering
Directive. With regard to question raised by DE on the application of the concept of beneficial
ownership to all types of entities including specialised collective investment funds in
countries imposing withholding tax the Commission services noted that choice has to be made
on the application of the Directive on upstream economic operator at the moment the interest
payment is made or on downstream economic operator at the time of distribution of assets.
Application of the Directive at the moment of distribution of assets has its merits since it is
relevant moment for imposition of taxes in the most MS.
3.2.2. Definition of paying agent
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On chapter 4.1, dealing with the extension of the "paying agents on receipt" provision to all
transparent entities with the exception of UCITS, BE expressed concerns that establishing and
updating of "positive list" of entities under the Comitology procedure would be too
burdensome. In response, the Commission services referred to complaints by market operators
that current application of “paying agents on receipt” provision is too burdensome on
upstream economic operators.
UK observed that "paying agent on receipt" provision currently is of limited application and
questioned the usefulness of having a "positive list" of entities concerned by Article 4(2).
Nevertheless, such suggestion could be explored further as an alternative to look-through
approach. Insofar as an official list is concerned IE would support establishing of a “positive
list” under the Directive rather than under the Comitology procedure.
On chapter 4.2., the Commission services' draw attention to the fact that the position of
discretionary trusts is similar to LH foundations as in both cases distributed assets have no
link with the interest payment. It suggested imposing an obligation on trustee or manager of
the foundations to exchange information or to withhold tax at the moment of the first
distribution of assets. With regard to bare trusts UK disagreed with the analysis of the
Commission services, observing that bare trusts are covered by the Directive not because of
the look-through approach but due to the fact that settlor maintains control over a trust. UK
raised the question whether the Directive could be applied to foundations by imposing an
obligation on upstream economic operator as in case of bare trusts. It noted that difference
between bare trusts and foundations lies in legal personality. In response the Commission
services drew a link to chapter 2.1 of the working document dealing with application of look-
through approach to entities established outside the EU noting that such a solution not
necessarily is appropriate in the intra-community situation. There is a practical difficulty of
imposing withholding tax at the moment interest payment is made since the beneficial owner
is unknown. Application of the Directive at the moment of distribution of assets is feasible
both for exchange of information and withholding tax systems.
DE underlined the necessity to cover under the Directive both entities which are recognised
for tax purposes and entities which are not recognised for tax purposes. In case of entities not
recognised for tax purposes, Directive would be applied at the moment the payment is made
and in case of entities recognised for tax purposes, the Directive would be applied at the
moment of distribution of assets.
On chapter 4.3., the Commission services' working document suggests an introduction of anti-
abuse provision dealing with prevention of deliberate routing of interest payments through
non-EU branches. On the Commission services' question concerning the MS' experience UK
referred to the judgment delivered by UK tax commissioners requiring banks with head
offices in UK to obtain any information which is in their power and possession. Banks are
required to provide information which is in their power and possession outside UK
jurisdiction, including branches and, eventually subsidiaries. In addition, voluntary disclosure
scheme has been launched on reporting of income from offshore accounts without being
subject to additional penalties. With regard to question on the compatibility of such measures
with the banking secrecy provisions in the 3rd countries UK was not aware of any obstacles.
The Chair noted that suggestions concerning prevention of routing interest payments through
non-EU branch are of particular interest with regard to SG since banks with their headquarters
in EU are usually established in the form of SG branch.
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3.2.3. Definition of interest payment (Article 6) On chapter 5.1, (also 3rd point of the exchange of letters between the Commission and Swiss
Confederation), dealing with the application of the principle "substance over form" to
structured financial products ES and DE questioned the feasibility of producing a
comprehensive list of structured financial products concerned. Preferably, objective criteria
need to be defined in order to keep in line with the developments of financial markets. In that
regard the Commission services raised the point that producing of a "positive list" of
structured financial products would result in greater legal certainty required by market
operators.
With regard to chapter 5.2 dealing with the extension of the scope of the Directive to life
insurance products the Commission services indicated the difficulty of maintaining a dual
system of exchange of information and withholding tax system. In regard to point 1 of the
room document DE suggested different approach for products which cannot be classified as
insurance as such. In particular, life insurance policies with minimal cover and individual
asset management by credit institutions should be treated in transparent manner. As the result,
exchange of information or withholding tax would apply as soon as the income accrues to the
insurance company provided that the income can be attributed to individual.
With regard to chapter 5.3, DK supported the Commission services' suggestion to work out a
definition of collective investment vehicle on the basis provided by the 2002 OECD Model
Agreement. The Commission services added that the extension of the definition to any kinds
of collective investment funds for the purposes of the Directive eventually would facilitate a
broader interpretation of the notion of "collective investment vehicle" as provided for in the
EU savings agreements with the 3rd countries.
On chapter 5.5, ES supported the Commission services' suggestion that slight amendments to
Art 8 of the Directive would be useful in order to clarify application of "home country rule"
for collective investment vehicles. In regard to the list of service providers the Commission
services clarified that number of MS provides for a list of reliable data providers for the
convenience of paying agents. Establishment of reliable data providers under the Comitology
procedure or adoption of more informal measure could facilitate uniform application of the
provision.
3.2.4. Appropriate forms of cooperation for other products not covered by Article 6 of
the Directive
With regard to chapter 6 the Commission services reminded that any suggestion to amend the
Directive shall follow the structure of the Directive. As a paying agent is the last link in the
chain of economic operators, only the companies making direct dividend payments could be
considered as paying agents for the purposes of the Directive. With regard to DE suggestion
to extend the scope of the Directive to all kind of investment income UK was reserved noting
that requiring the companies to introduce reporting systems could be too burdensome.
Regarding IT question on the imposition of withholding tax on dividends at the level of
paying agent, the Commission services were not aware of similar difficulties as in case of
clearing and settlement service providers since the withholding tax under the Directive is
applied at the last link of chain of intermediaries. The Commission services added that
according to Article 16 of the Directive there is no interference between the withholding tax
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under the Directive and withholding tax under the source country tax laws. Due to eventual
economic double taxation of dividends in some MS it would be difficult to maintain a system
of withholding tax for dividend payments. Therefore a system based on exchange of
information would be more appropriate for dividend payments.
3.2.5. Improvements to the information reporting and exceptions to the withholding tax
procedure (Articles 8 and 13)
With regard to chapter 8 dealing with exceptions to the withholding tax procedure BE was
reserved to making voluntary disclosure procedure compulsory. It recalled the statement by
the Minister of Finance that BE will apply exchange of information system as from 1 July
2011. The Commission services referred to the example of LU which has introduced both tax
certificate and voluntary disclosure procedure. Further, it drew attention to the fact that
problems associated with the certificate procedure have broader implications than suggested
by BE, indicating the difficulty of obtaining tax refund in case tax residence does not coincide
with permanent address of individual. Finally, it noted that the 3rd countries mostly use
voluntary disclosure procedure since it is less burdensome for tax administrations.
Before concluding the discussions on the review of the Directive, the Chair thanked DE
delegation for its room document and briefly reflected on the comments made by MS. She
informed on the follow-up work on the Commission services’ staff working document due to
be presented at the Council Working Party on Tax Questions – Direct Taxation held on 5 May
2008. Finally, she asked the experts to submit comments on the working document by 24
April 2008 at the latest, as well as informed on the Commission services' intention to invite
EUSD Expert Group for further comments.
3.3. EXCHANGE OF LETTERS BETWEEN THE COMMISSION AND SWISS
CONFEDERATION
The Commission services briefly addressed three issues that were dealt in the exchange of
letters between the Commission and CH - accession of BG and RO to the EU, exclusion of
real estate funds from the scope of the savings agreement and exclusion of interest payments
made to non-domiciled persons from the scope of the agreement. With regard to application
of the savings agreement to non-domiciled persons CH raised the issue of level playing field
as well as requested MS having non-domiciled systems to declare that revenue accrued is
subject to withholding tax. In that regard UK and IE noted that as a matter of principle the
Directive and the savings agreement shall equally apply to ordinary residents and non-
domiciled persons. At the same time, they found it reasonable to request a special statement
on liability to tax. The Commission services will contact MT on this issue as well.
4. FINAL REMARKS
Before concluding the meeting, the Chair thanked the experts for their contribution and
informed on the follow-up work. If necessary, the following meeting of the Working Party IV
on Direct Taxation will be held on 25 June 2008 and the meeting of EUSD Expert Group will
be held on 29 May 2008. Finally,
asked the experts to make their best efforts in order to
ensure that comments by the MS on the working document and DE room document are
received by the Commission services by 24 April 2008 at the latest.
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