The EU Council of Ministers adopted changes to the EU Savings Directive on 24th March 2014. The changes to the Directive have to be transposed into the national laws of EU member states by 1st January 2016. Automated data transfer for interest income in the calendar year 2016 will, from 1st January 2017, also be applied by Luxembourg and Austria, which refused to join the automated data transfer system on the basis of the original EU Savings Directive in 2005. This means the end of bank secrecy for accounts of foreign EU account holders in Luxembourg and Austria.
In comparison to the original EU Savings Directive the definition of interest was amended especially by inclusion of the following income:
- Interest or equivalent income derived from saving products, which are similar to interest receivables;
- Income from life insurances with a savings element;
- Income from investment funds.
Additionally, the amended EU Savings Directive obliges the paying agent to take steps to identify who is benefiting from interest payments.
The adoption of the EU Directive amendment has been made possible by Luxembourg and Austria giving up their long-lasting resistance against a European-wide exchange of information. The representatives of Luxembourg and Austria agreed after the other EU member states published their action plan against Switzerland, Lichtenstein, Monaco, San Marino and Andorra. The action plan provides for negotiations between the EU Commission and those countries until the end of 2014 regarding adoption of EU standards regarding information exchange. Furthermore, the EU Commission was authorized to consider other means of leverage against non-EU states, if those states were not willing to cooperate on information exchange.
As a further measure in their campaign against tax fraud and tax evasion, the EU member states are planning an amendment of the EU Directive regarding data exchange before the end of 2014. The envisaged changes provide that the automated data exchange system will be amended with respect to the following income and information:
- Capital gains;
- Account balances.
The EU member states have increased their pressure on non-cooperative financial centres and have followed the trend of the leading industrial countries in the fight against tax fraud and tax evasion. Therefore, holders of foreign accounts should review the potential consequences that the amendment of the information exchange system between EU member states may have on their own tax liability in their state of residence. As the tax authorities of that state will for the first time be provided with the actual balances of the foreign accounts, there should be an explanation for the source of the capital in the foreign account. Furthermore, taxpayers with accounts in non-EU states (e.g. Switzerland) should be prepared for further restrictions of bank secrecy or sanctions against non-cooperative financial centres.