European Commission announces proposal to extend the scope of automatic exchange of information between EU Member States
On 12 June 2013, the European Commission (the "Commission") announced a proposal to extend the automatic exchange of information between EU Member States to include dividends, capital gains and other forms of financial income and account balances (the "Proposal").
The Proposal is the latest step in the Commission's efforts to combat perceived tax fraud and evasion, and to promote automatic exchange of information as a global standard. The Proposal was trailed at the European Council meeting on 22 May 2013, and the importance of automatic exchange of information generally was highlighted in the Commission's "action plan", intended to combat tax fraud and tax evasion, adopted on 6 December 2012.
Details of the Proposal
In January 2013, a new EU Directive on Administrative Cooperation (the "DAC") came into force which provides, amongst other things, for the automatic exchange of available information on the following five categories of income as from 1 January 2015: income from employment, director's fees, life insurance products, pensions, and immoveable property (the "existing categories").
The Proposal seeks to extend the scope of the DAC to include the following new items which are paid, secured or held by a financial institution for the direct or indirect benefit of a beneficial owner who is a natural person resident in a different EU Member State to that of the relevant financial institution:
- capital gains;
- any other income generated with respect to the assets held in a financial account;
- any amount with respect to which the financial institution is the obligor or debtor, including any redemption payments; and
- account balances.
While information on the existing categories of income is subject to automatic exchange only where such information is "available", this qualification will not extend to the exchange of information on the new items listed in the Proposal, for which automatic exchange of information will be mandatory.
The Proposal is intended to ensure that the scope of automatic exchange of information between EU Member States is as wide as the scope of information exchange which will be required in connection with the U.S. Foreign Account Tax Compliance Act (commonly known as FATCA).
Current legislation - EU Savings Tax Directive
Automatic exchange of information has existed in a more limited form within the European Union since 2005, when the EU Directive 2003/48/EC (the "Savings Directive") came into force. In broad terms, the Savings Directive provides for the automatic exchange of information between the majority of EU Member States in relation to certain cross-border payments of interest (and similar interest-bearing income).
In 2008, the Commission proposed amendments to the Savings Directive with a view to closing certain perceived loopholes and countering tax evasion through the use of certain intermediaries. These proposed amendments would extend the scope of the Savings Directive to investment funds, pensions, innovative financial instruments and payments made through trusts and foundations. The proposed amendments have not yet been adopted but, at the European Council in May 2013, the EU Member States committed to adopting the revised Savings Directive before the end of 2013.
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