Proposal for a COUNCIL DECISION on the signature of the Agreement between the European Community and the Republic of San Marino providing for measures equivalent to those laid down in Council Directive 2003/48/EC 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 with Switzerland, the United States of America, Andorra, Liechtenstein, Monaco and San Marino appropriate agreements for securing the adoption by these countries of 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 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 third countries asking for negotiations to commence even though it was only after the ECOFIN Council's approval of a text of the draft Directive, on 13 December 2001, that these negotiations could really begin. A large number of meetings at both political and technical level have been held since. In accordance with the Council Decision of 16 October 2001, the Commission conducted these negotiations in close conjunction with the successive Presidencies of the Council. The Commission made regular oral progress reports of these negotiations to the Council and the Parliament and presented a Communication on the negotiations with third countries on taxation of savings income to the ECOFIN Council of 3 December 2002 [2]. At the ECOFIN Council's request, negotiations on taxation of savings income have continued since.

[2] SEC (2002) 1287 final, 27.11.2002

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

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

Earlier that year, on 21 January 2003, the Council had determined the four elements to be:

- 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 if changes to the agreement are necessary taking into account international developments.

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

The Agreement with San Marino, which includes these four elements, is now being presented to the Council for signature and conclusion. The Agreement is accompanied by an ancillary Memorandum of Understanding (hereinafter MoU) between the Republic of San Marino and the European Community together with each of its Member States. In accordance with the ECOFIN Council conclusions of 21 January 2003, the MoU confirms that, during the transitional period provided for in 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 the adoption by those jurisdictions of measures equivalent to those to be applied by the Community. The MoU also provides that the agreed measures will be implemented in good faith and that parties will not act unilaterally to undermine this arrangement without due cause. Should any significant difference between the coverage of Council Directive 2003/48/EC and that of the Agreement be discovered, the Contracting Parties will immediately enter into consultations with a view to ensuring that the equivalent nature of the measures provided for in the Agreement is maintained.

[3] OJ L 157, 26.06.2003, p.38

The MoU adds that the conclusion of fiscal agreements with Member States of the European Union and San Marino's commitment to provide, within this framework, for information exchange in accordance with the standards of the OECD would enhance wider economic and tax cooperation. Recognising the efforts made by San Marino, consultations could take place between San Marino and the Member States of the European Union with the objective of eliminating or reducing, on a bilateral basis, double taxation in relation to different forms of income.

The MoU also states that the parties shall enter into consultations as soon as possible with a view to:

- examining the conditions for gradually improving mutual free access to the financial markets of both Parties. A preliminary condition is the need for the relevant prudential rules, and the supervision of the San Marino's operators concerned, to be of a kind that will preserve the proper functioning of the internal market in the sectors in question. Any possible Agreement in this field must be founded on the adoption and the implementation, by the Republic of San Marino, in the relevant business sectors, of the existing, and future, « acquis communautaire ». Such an Agreement should also provide that the Republic of San Marino undertakes to implement other Community rules, both current and those to be introduced in future, for example in matters of competition and taxation, which are also relevant to ensure the proper functioning of the internal market in the sectors in question;

- examining the possibilities of simplifying the procedures laid down in their Agreement on Customs Union and Cooperation. In this regard, the Republic of San Marino is ready to adopt computerised procedures similar to the INTRASTAT system;

- examining the possibilities for access by nationals of the Republic of San Marino to research, study and higher training programmes implemented by the European Community;

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 MoU 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 on taxation of savings income in the form of interest payments, and on approval and signature of the accompanying MoU, 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 Republic of San Marino should be entered into on the basis of unanimity.

Proposal for a COUNCIL DECISION on the signature of the Agreement between the European Community and the Republic of San Marino providing for measures equivalent to those laid down in Council Directive 2003/48/EC 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 from the Commission [4],

[4] OJ C ..., ........2004, p...

Whereas:

(1) On 16 October 2001, the Council authorised the Commission to negotiate with the Republic of San Marino an appropriate agreement for securing the adoption by the Republic of San Marino 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 Republic of San Marino 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 12 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 between the European Community and the Republic of San Marino providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments, 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 Community.

The text of the above Memorandum of Understanding is approved by the Council as attached to this Decision.

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 Republic of San Marino

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 Republic of San Marino

When an Agreement providing for measures equivalent to those laid down in the Council Directive 2003/48/EC of 3 June 2003 on the taxation of savings income in the form of interest payments (hereinafter "the Directive") was concluded, 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 Republic of San Marino signed this Memorandum of Understanding supplementing this Agreement.

1. The signatories to this Memorandum of Understanding consider that the Agreement between the Republic of San Marino and the European Community providing for measures equivalent to those laid down in the Directive is a balanced and acceptable agreement protecting the interests of both Parties. Consequently, they shall apply in good faith the measures agreed and shall refrain from taking any unilateral action which might jeopardise this Agreement without reasonable cause. If a serious discrepancy is discovered between the scope of the Directive as adopted on 3 June 2003 (Council Directive 2003/48/EC) and that of the Agreement, in particular as concerns Articles 4 and 6 of the Agreement, the Contracting Parties shall consult each other forthwith in accordance with Article 15, paragraph 1 of the Agreement to ensure that the equivalent nature of the measures provided for by the Agreement is safeguarded. The signatories to this Memorandum of Understanding note that the definition of tax fraud for the purposes of Article 13 of the Agreement concerns only needs relating to the taxation of savings within the framework of this Agreement and is without prejudice to developments and/or decisions relating to tax fraud under other circumstances and in other fora.

2. During the transitional period provided for in the Directive, the European Community shall 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. Considering that the Republic of San Marino wishes to be further integrated in the European economic environment, and that it considers its full participation in the European banking and financial system as therefore appropriate and desirable, the Republic and the European Community shall enter into consultations as soon as possible with a view to identify the conditions for reaching a mutual recognition of the prudential measures and systems of the respective Parties on financial services, including insurance. In this context, the Republic of San Marino, in order to preserve the proper functioning of the internal market in the sectors in question, undertakes to adopt and implement, in the relevant business sectors, the relevant existing, and future, "acquis communautaire", including the relevant prudential rules and the supervision of the San Marino operators concerned. Any possible Agreement in this field may also provide that the Republic of San Marino undertakes to implement other relevant Community rules, both current and those to be introduced in future, for example in matters of competition and taxation.

4. In this context of deepening relations, the conclusion of fiscal agreements with Member States of the European Union and San Marino's commitment to provide, within this framework, for information exchange in accordance with the standards of the OECD would enhance wider economic and tax cooperation. Recognising the efforts made by San Marino, consultations could take place between San Marino and the Member States of the European Union with the objective of eliminating or reducing, on a bilateral basis, double taxation in relation to different forms of income.

5. The European Community and the Republic of San Marino shall also enter into consultations with a view to:

- defining forms for simplifying the procedures laid down in their Agreement on Customs Union and Cooperation. In this regard, the Republic of San Marino is ready to adopt computerised procedures even similar to the INTRASTAT system;

- better exploring the existing possibilities for nationals and enterprises from the Republic of San Marino to participate in research and development Community programmes and activities.

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

Signatures