On March 18 2015 the European Commission published a proposed Directive which will, for the most part, repeal the EU Savings Directive with effect from 1 January 2016. The proposal is, in our view, a sensible one as the global developments in automatic information exchange are soon to obviate the need for the EU Savings Directive.

EU Savings Directive

The EU Savings Directive was adopted in 2003 and was aimed at ensuring the effective taxation of interest income received from a paying agent established in another Member State. This was to be achieved by either:

  • The automatic exchange of information between the Member State in which the paying agent was established and the Member State in which the recipient was resident; or
  • The operation of a withholding tax by the paying agent. All Member States except Austria have by now opted for the automatic exchange of information regarding the payments.

Revised EU Savings Directive

In March 2014, a revised EU Savings Directive was adopted to address certain limitations of the 2003 Directive. The main changes the 2014 Directive made included extending the application of the 2003 Directive to include financial products that have similar characteristics to debt claims, broadening the scope of the Directive so that it applies to relevant income from all investment funds (in addition to income from UCITS), and adopting a “look-through” approach in order to establish the beneficial owner of the payment. These changes were to be effective in Member States from 1 January 2017 (the Irish legislation to implement these changes is not yet in place).

It is worth noting that the revised EU Savings Directive 2014 is currently in force and so the deadline is approaching for governments to introduce legislation and for paying agents to introduce systems to implement the broadened scope of the EU Savings Directive. These stakeholders are therefore in the unusual position of being required to introduce measures to implement a Directive that the Commission is proposing to repeal.

Broader information exchange

The EU Savings Directive was the first multi-jurisdictional automatic information exchange agreement of its kind. In recent years, there has been a global acknowledgement by governments that automatic information exchange agreements are an effective mechanism to prevent tax evasion. This has resulted in the introduction of FATCA by the US, and the signing of a multilateral agreement to automatically exchange information by 51 OECD countries in October 2014 (known as the ‘Common Reporting Standard’ or ‘CRS’).  

In order to provide an EU-level legal basis for CRS, the Amending Directive on Administrative Cooperation (DAC) was adopted on 9 December 2014. DAC requires a broad range of information relating to all types of financial products (with certain exemptions) to be automatically exchanged by Member States. Member States are required to adopt and publish the laws necessary for this information exchange by 31 December 2015 and for these to be effective by 1 January 2016. The first information exchange under DAC will take place by 30 September 2017 in relation to the year 2016.

The implementation of CRS under DAC requires all material information that would be exchanged under the EU Savings Directive to be exchanged under DAC. Therefore, in order to avoid duplication of reporting and the legal ambivalence associated with two sets of reporting rules, the Commission has brought forward the proposal to repeal the EU Savings Directive. The proposed Directive will be submitted to the European Parliament for consultation and to the European Council for adoption, and so it is not expected to enter into force imminently.

Although the repeal of the EU Savings Directive may reduce the compliance burden for financial institutions by avoiding duplication of reporting of interest payments, their overall compliance obligations look likely to continue to grow as wider ranging information exchange agreements take hold.