On March 20, 2014 Luxembourg has agreed to a proposed revision of the EU Savings Directive. This clears the path for the EU Council of Ministers to adopt the amendments in the Savings Directive which ensure taxation of interest payments made by financial institutions to residents of other Members States. This means that the scope of the automatic exchange of information about which account holders receive what interest payment will be broadened.

Position of Austria and Luxembourg

Nearly all EU Member States already have such an exchange under the current rules, but Austria and Luxembourg did not want to reveal the names of account holders to other countries under their banking secrecy rules and instead apply a withholding tax of 35%. The main reason for this refusal was the fear for an exodus of savings capital to neighboring countries outside the EU such as Switzerland and Liechtenstein. The European Commission is currently negotiating with these countries in order to achieve a level playing field. According to a report submitted to the Member States by the EU Commission significant progress had effectively been made in these negotiations. Liechtenstein has recently indicated that it will lift its banking secrecy by the end of 2014.

Broadening the scope of the Directive

As a result of the agreement not only the territorial scope but also the material scope of the information exchange under the Savings Directive will be broadened. The main changes are the following:

  • certain non-UCITS investment funds and certain structured products that are currently out of scope of the Directive will be covered in the future;
  • certain insurance contracts (unit linked insurance contracts) whose benefits are, to some extent, derived from debt claims will be covered by the amended Directive;
  • a look-through approach to certain EU and non-EU interposed entities or legal arrangements (including Trusts, foundations and transparent entities) in order to ensure that beneficial owners will not be able to circumvent the Directive by interposing such entities.

As the EU Council of Ministers still has to formally adopt the Directive it is not certain when these changes will take into effect. We expect that Member States will have to implement the new rules by January 1, 2016.

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