Savings Tax Directive Takes Effect
The "Savings Tax Directive", which introduces a new system of information sharing between tax authorities in respect of interest payments, takes effect from 1 July 2005. The purpose of the directive is to ensure that interest payments made in one EU member state to an individual resident for tax purposes in another are taxed in accordance with the laws of the latter. Agreements to introduce similar measures have also been made with certain other states and territories.
The directive obliges financial institutions (or "paying agents") to establish the identity and residence of all individuals to whom they make interest payments. The Revenue Commissioners will receive information regarding interest payments made by Irish paying agents to individuals resident in other EU member states. This information will be forwarded by Revenue to the relevant authorities in the appropriate member state or territory. Similarly, the Revenue Commissioners will receive information from other EU tax authorities in respect of Irish residents who have received interest payments from institutions in other EU countries.
The first reports from Irish paying agents, covering the period from 1 July 2005 to 31 December 2005 will be submitted to Revenue by 31 March 2006. Each national tax authority has six months after the end of the year to collect, collate and submit the information to the relevant authorities in the other member states.
As a transitional arrangement three member states, Austria, Belgium and Luxembourg, have been allowed to apply a withholding tax to interest payments to individuals resident in other EU member states instead of exchanging information.
The option to apply a withholding tax is also available to the dependent and associated territories of the UK and the Netherlands.
[Ends 30/06/05]
Additional Information
Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments is better known as the "Savings Tax Directive".
The requirements of the Savings Tax Directive will apply to:
All payments of interest made to individuals resident in EU Member States and certain dependent and associated territories of the UK and the Netherlands on and from that date. The territories concerned are Anguilla, Aruba, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Montserrat, the Netherlands Antilles and the Turks and Caicos Islands.
In addition, a series of related agreements between the EU and Andorra, Liechtenstein, Monaco, San Marino and Switzerland also come into effect on 1 July 2005 under which these countries will apply a withholding tax to interest payments made to individuals resident in EU member states. The withholding tax will be on the same basis as that to be applied by Austria, Belgium and Luxembourg.The other aspect of the agreements with Andorra, Liechtenstein, Monaco, San Marino and Switzerland is the exchange of information between EU member states and these countries on request in the case of tax fraud.
Austria, Belgium and Luxembourg: Transitional Arrangements
The withholding tax will apply at the rate of 15% for the first three years of the operation of the Directive; 20% for the next three years and 35% thereafter. The withholding tax is shared with 25% going to the country deducting it and 75% going to the country of residence of the individual who owns the interest from which the tax was withheld.
There is no reciprocal withholding by Ireland from interest payments to residents of these countries, however, Ireland will send information to these countries.
The option to apply a withholding tax is also available to the dependent and associated territories of the UK and the Netherlands.
The following have opted to apply a withholding tax: the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Netherlands Antilles and the Turks and Caicos Islands.
The following have opted to exchange information with Ireland: Anguilla, Aruba, the Cayman Islands and Montserrat.
Further detailed information is available at the Revenue website:
www.revenue.ie/publications/eu_savings_directive.htm