Proposal for a COUNCIL DECISION on the signature of the Agreement between the European Community and the Principality of Liechtenstein providing for measures equivalent to those laid down in Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments and the approval and signature of the accompanying Memorandum of Understanding

(presented by the Commission)

EXPLANATORY MEMORANDUM

By its decision of 16 October 2001, the Council authorised the Commission to negotiate appropriate agreements with Switzerland, the United States of America, Andorra, Liechtenstein, Monaco and San Marino to ensure that these countries adopt measures equivalent to those to be applied within the Community to ensure effective taxation of savings income in the form of interest payments. The Commission was instructed to conduct these negotiations in close conjunction with the Presidency of the Council, and in close and regular consultation with the High-Level Working Party set up by Coreper Decision of 13 June 2001 [1] and appointed by the Council as a special committee to assist the Commission in that task.

[1] OJ C 183, 29.6.2001, p. 1.

Following the decision of 16 October 2001, the Commission wrote to the above non-EU countries to request the opening of negotiations even though it was only after the ECOFIN Council's approval of a text of the draft directive, on 13 December 2001, that the negotiations could really begin. A large number of meetings at both political and technical level have since been held. In accordance with the Council decision of 16 October 2001, the Commission conducted the negotiations in close conjunction with successive Presidencies of the Council. It made regular oral progress reports to the Council and Parliament, and presented a communication on the negotiations with third countries on taxation of savings income to the ECOFIN Council on 3 December 2002. [2]

[2] SEC (2002) 1287 final, 27.11.2002.

On 3 June 2003 the Council stated that the draft agreement with Switzerland submitted by the Commission on 28 May 2003 constituted the final offer for an agreement between the EU and Switzerland. The Council minutes also state:

"The four elements of this agreement relating to savings taxation also constitute the basis for agreements between the European Union and Liechtenstein, Andorra, Monaco and San Marino...".

On 21 January 2003 the Council identified these four elements as:

"- Retention and withholding: Switzerland will apply the same rates of retention and withholding as Belgium, Luxembourg and Austria ...

- Revenue sharing: Switzerland will share the revenue of the retention tax and will accept the 75/25 division applied within the Community ...

- Voluntary disclosure of information

Review clause stating that "The Contracting Parties shall consult with each other at least every three years or at the request of either Contracting Party with a view to examining and - if deemed necessary by the Contracting Parties - improving the technical functioning of the Agreement. In any event when Belgium, Luxembourg and Austria change from withholding tax to automatic exchange of information in accordance with the Directive, the Contracting Parties shall consult each other in order to examine whether the changes to the Agreement are necessary taking into account international developments.

Switzerland grants exchange of information on request for criminal or civil cases of fraud or similar misbehaviour on the part of taxpayers...".

The Agreement with Liechtenstein, which includes these four elements, is now being presented to the Council for signature and conclusion. It is accompanied by a Memorandum of Understanding between the European Community and its Member States, of the one part, and the Principality of Liechtenstein of the other part. In accordance with the conclusions of the ECOFIN Council of 21 January 2003, the Memorandum of Understanding confirms that within the transition period provided for by Council Directive 2003/48/EC of 3 June 2003, [3] the European Community will enter into discussions with other important financial centres with a view to promoting adoption by those jurisdictions of measures equivalent to those applied by the Community. The Memorandum of Understanding also provides that the agreed measures will be implemented in good faith and that the Parties will not act unilaterally to undermine this arrangement without due cause. Should any significant difference between the scope of Council Directive 2003/48/EC and that of the Agreement, in particular with regard to Article 6 of the Agreement, be discovered, the Contracting Parties will immediately enter into discussions with a view to ensuring that the equivalent nature of the measures provided for by the Agreement is maintained. As regards the exchange of information, the Memorandum of Understanding provides that the Principality of Liechtenstein undertakes to make its best endeavour to determine without delay the acceptability of a duly justified request in accordance with its procedural laws. The Memorandum of Understanding further states that European Union and its Member States will take into account Liechtenstein's decision to provide for measures equivalent to the Directive in their co-operation with Liechtenstein including co-operation on fiscal matters. The signatories agree that in the context of the negotiations foreseen on the exchange of information as set out in Article 10(4) of the Agreement, either party may raise in parallel other taxation issues, including issues related to the elimination of double taxation of income.

[3] OJ L 157, 26.6.2003, p. 38.

The Commission considers that the text of the Agreement is in accordance with the negotiating directives adopted by the Council on 16 October 2001. The Council gave its political agreement to the text on 2 June this year and the Council High-Level Working Party mentioned above confirmed its consensus on the details of the Agreement and of the accompanying Memorandum of Understanding on 9 June.

The Commission proposes that the Council approve the attached proposals:

- for a decision on the signature of the Agreement providing for measures equivalent to those laid down in Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments, and on the approval and signature of the accompanying Memorandum of Understanding, and

- for a decision on the conclusion of the above Agreement under the procedures set by Article 300 of the Treaty establishing the European Community.

Article 300(2) of the Treaty establishing the European Community stipulates that the Council shall act unanimously when the Agreement covers a field for which unanimity is required for the adoption of internal rules. As the internal rules in the field covered by this Agreement have been adopted on the basis of Article 94 of the Treaty, the Commission considers that the Council should act unanimously to approve the proposal for a decision. According to the ECOFIN Council conclusions of 21 January 2003, the Council agrees that the Agreement with the Principality of Liechtenstein should also be adopted on the basis of unanimity.

Proposal for a COUNCIL DECISION on the signature of the Agreement between the European Community and the Principality of Liechtenstein providing for measures equivalent to those laid down in Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments and the approval and signature of the accompanying Memorandum of Understanding

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 94 in conjunction with the first subparagraph of paragraph 2 of Article 300 thereof,

Having regard to the proposal of the Commission, [4]

[4] OJ C [...] [...], p. [...]

Whereas:

(1) On 16 October 2001 the Council authorised the Commission to negotiate with the Principality of Liechtenstein an appropriate agreement for securing the adoption by the Principality of measures equivalent to those to be applied within the Community to ensure effective taxation of savings income in the form of interest payments.

(2) The text of the Agreement which is the result of the negotiations reflects duly the negotiating directives issued by the Council. It is accompanied by a Memorandum of Understanding between the European Community and its Member States, of the one part, and the Principality of Liechtenstein of the other part.

(3) Subject to the adoption at a later date of a Decision on the conclusion of the Agreement it is desirable to sign the two documents that were initialled on 30 July 2004 and have confirmation of the Council approval of the Memorandum of Understanding,

HAS DECIDED AS FOLLOWS:

Sole Article

Subject to the adoption at a later date of a Decision on the conclusion of the Agreement the President of the Council is hereby authorised to designate the persons empowered to sign the Agreement, the accompanying Memorandum of Understanding and the Letters referred to in Article 21 paragraph 2 of the Agreement and in the last paragraph of the Memorandum of Understanding on behalf of the European Community.

The text of the abovementioned Memorandum of Understanding, attached to this Decision, is approved by the Council.

Done at Brussels, [...]

For the Council

The President

Annex

Memorandum of Understanding

between

the European Community,

the Kingdom of Belgium,

the Czech Republic,

the Kingdom of Denmark,

the Federal Republic of Germany,

the Republic of Estonia,

the Hellenic Republic,

the Kingdom of Spain,

the French Republic,

Ireland,

the Italian Republic,

the Republic of Cyprus,

the Republic of Latvia,

the Republic of Lithuania,

the Grand Duchy of Luxembourg,

the Republic of Hungary,

the Republic of Malta,

the Kingdom of the Netherlands,

the Republic of Austria,

the Republic of Poland,

the Portuguese Republic,

the Republic of Slovenia,

the Slovak Republic,

the Republic of Finland,

the Kingdom of Sweden,

the United Kingdom of Great Britain and Northern Ireland

and

the Principality of Liechtenstein

The European Community, the Kingdom of Belgium, the Czech Republic, the Kingdom of Denmark, the Federal Republic of Germany, the Republic of Estonia, the Hellenic Republic, the Kingdom of Spain, the French Republic, Ireland, the Italian Republic, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Grand Duchy of Luxembourg, the Republic of Hungary, the Republic of Malta, the Kingdom of the Netherlands, the Republic of Austria, Poland, the Portuguese Republic, the Republic of Slovenia, the Slovak Republic, the Republic of Finland, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland

and

the Principality of Liechtenstein, hereinafter referred to as "Liechtenstein"

have agreed as follows:

1. Introduction

Liechtenstein and the European Community are entering into an Agreement providing for measures equivalent to those laid down in Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments (hereinafter the Directive). This Memorandum of Understanding complements that Agreement.

2. Discussions for securing equivalent measures with other third countries.

During the transitional period provided for in the Directive, the European Community will enter into discussions with other important financial centres with a view to promoting the adoption by those jurisdictions of measures equivalent to those to be applied by the Community.

3. Declaration of intent

The signatories of this Memorandum of Understanding declare that they consider the Agreement referred to in point 1 and this Memorandum to provide an acceptable and balanced arrangement that can be considered as safeguarding the interests of the parties. They will therefore implement the agreed measures in good faith and will not act unilaterally to undermine this arrangement without due cause.

If any significant difference between the coverage of the Directive as adopted on 3 June 2003 and that of the Agreement should be discovered, in particular with regard to Article 6 of the Agreement, the Contracting Parties will immediately enter into consultations in accordance with Article 13 (1) of the Agreement with a view to ensuring that the equivalent nature of the measures provided for in the Agreement is maintained.

Liechtenstein undertakes to make its best endeavour to determine without delay the acceptability of a duly justified request for exchange of information according to Article 10, in accordance with its procedural laws.

The European Union and its Member States will take into account Liechtenstein's decision to provide for measures equivalent to those laid down in the Directive in their cooperation with Liechtenstein, including the cooperation in fiscal matters. The Signatories agree in this context that either party to negotiations foreseen in article 10 paragraph 4 of the Agreement may raise in parallel with such negotiations other taxation issues, including issues related to the elimination or reduction of double taxation of income.

Signed at ........................ on ........................ in duplicate in Danish, Dutch, English, Finnish, French, German, Greek, Italian, Portuguese, Spanish and Swedish languages, the texts in each of these languages being equally authentic.

The Czech, Estonian, Hungarian, Latvian, Lithuanian, Maltese, Polish, Slovak and Slovenian language versions shall be authenticated by the Contracting Parties on the basis of an exchange of letters. They shall also be authentic, in the same way as for the languages referred to in the preceding paragraph.

Signatures