EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 13.11.2008 
SEC(2008) 2768 
  
COMMISSION STAFF WORKING DOCUMENT 
 
Accompanying the 
 
Proposal for a  
 
COUNCIL DIRECTIVE  
 
amending Council Directive 2003/48/EC on taxatio n of savings income in the form of 
interest payments  
IMPACT ASSESSMENT SUMMARY  
{COM(2008) 727 final} 
{SEC(2008) 2767}  
 
EN 2   EN 1. INTRODUCTION  
The Taxation of Savings Directive (EUSD) 
Council Directive 2003/48/EC on the taxation of sa vings income in the form of interest 
payments (EUSD) was adopted in 2003. The EU SD provisions started to be applied by 
Member States (MS) on 1 July 2005 at the same time that Andorra, Liechtenstein, Monaco, 
San Marino and Switzerland began to apply equivalent measures  under Agreements with the 
EC. From the same date 10 dependent or associ ated territories of the Netherlands and the UK 
began to apply the same measures as those of the EUSD. 
The ultimate aim of the EUSD is to allow each MS to apply its domestic tax rules on interest 
payments that its resident individuals receive from paying agents esta blished in other MS.  
In order to achieve this ultimate aim, the EUSD provides for an automatic exchange of 
information on such payments. However, duri ng a transitional period, three MS (Austria, 
Belgium and Luxembourg) apply a withholding tax and share the revenue with the MS of 
residence of the beneficial owner, instead of providing information.  
The Commission proposal for amendments to the EUSD is based on the first of the reports 
that the Commission has to present to the C ouncil every three years on the operation of the 
EUSD in accordance with its Art. 18. This Article also provides that the Commission shall, 
where appropriate, propose to the Council any am endments to the EUSD that prove necessary 
in order better to ensure effective taxation of savings income and to remove undesirable 
distortions of competition. 
Following the first revelations in February 200 8 about fraud cases, involving EU residents 
and foundations in Liechtenstein, there was a debate at the Council on 4 March 2008, and the 
Council "…called on the Commission to accelerate preparation of a report on the 
implementation of the Directive 2003/48/EC si nce its entry into fo rce on 1 July 2005… " . On 
29 April 2008, and prior to the presentation of  the Article 18 report, a Commission Staff 
Working Document [SEC(2008) 559] entitled "Refining the present coverage of Council 
Directive 2003/48/EC on taxation of income from  savings" served as the basis for an oral 
presentation by the Commission to the Council on 14 May 2008. This working document highlighted the main problems identified and rais ed a number of issues needing clarification 
with a view to possible refineme nts to the scope of the EUSD.  
The report under Art. 18 of  the EUSD was adopted by th e Commission on 15 September 2008 
[COM(2008) 552] and presen ted to the Council.  
The report was accompanied by a Commission St aff Working Document "presenting an 
economic evaluation of the effects of Counc il Directive 2003/48/EC on the basis of the 
available data" [SEC(2008) 2420]. This working document provides quanti tative approaches 
to evaluate the functioning of the EUSD. It anal yses the evolution of certain proceeds from 
investments. In addition, the analysis looks at  the effects of the implementation of the EUSD 
on some investment patterns. The last section of  the document offers a statistical analysis of 
the impact of the introduction of the EUSD on savings and on bank deposits.  
 
EN 3   EN 2. REVIEWING THE EUSD 
The report and the amending proposal are the resu lt of a long process of analysis and open 
consultation. This process was launched in  2005 when Commission staff started examining 
the operation of the EUSD and its interpretation with experts from the tax administrations of 
MS in two working groups, Working Party IV on Direct Taxation , and the Working Group 
"Administrative Cooperation in the field of Direct Taxation" . The first group has concentrated 
on the legal and practical issues related to th e substantive content of  the EUSD, whilst the 
latter group has helped to en sure a monitoring of the corr ect implementation of the EUSD 
concerning exchange of information and transf er of funds relating to the revenue sharing.  It 
has also helped to develop the format for information exchange. 
In parallel with the groups involving the tax administrations of MS, a special Expert Group on 
Taxation of Savings , with tax experts from banking, insurance, investments funds, asset 
management and related sectors in the EU, was set up in early 2007. This group provided the Commission with the viewpoint of  EU market operators on the application of the EUSD and, 
at the same time, facilitated a first scrutiny of the possible impact on markets of any amendments to the EUSD which could come up for consideration as a result of the review 
process.  
More detailed information on the review process can be found on the following webpage: 
http://ec.europa.eu/taxation_customs/taxation/pe rsonal_tax/savings_tax/savings_directive_rev
iew/index_en.htm 
Despite the efforts made by MS and market operators to provide the Commission with 
statistics, the quality and quant ity of the statistics received  are not sufficient to make a 
detailed quantitative analysis. However, the la ck of quantitative data is not "per se" an 
obstacle to make a proper analysis of the pr oblems identified during the consultation process 
or to propose adequate soluti ons. Furthermore, there is a n eed to anticipate developments 
based on the input of the stakeholders, which clearly recognise the need for improvements in 
the system. 
3. I
DENTIFIED PROBLEMS AND NEED FOR SOLUTIONS  
The consultations with business and national admi nistrations have shown that the coverage of 
the EUSD is not as wide as in principl e intended according to the unanimous Council 
conclusions of 27 November 2000 on which the EUSD is based, and also that the EUSD 
provisions contain loopholes. Su ch loopholes are detrimental to  the effectiveness of the 
EUSD, whether it is applied in the form of auto matic information exchange or, transitionally, 
through the levying of a withholding tax. They are also a potential source for market 
distortions because they hinder a consiste nt treatment of comparable situations. 
There is evidence that, for payments made with in the EU, the EUSD can be circumvented by: 
1. making use of intermediate investment vehi cles (legal persons or arrangements) which 
are not covered by the current formal definiti on of beneficial owner (that refers only to 
individuals) and which are not currently obliged to act th emselves as paying agents, and/or 
2. rearranging one’s investment portfolio in su ch a way that income remains outside the 
definition of interest payments of the EUSD, whilst benefiting from limitations of risk, 
flexibility and agreed return on investment  that are equivalent to debt claims. 
 
EN 4   EN A balanced solution to close the loopholes needs to take into account all of the three essential 
elements of the EUSD, namely “beneficial owne r”, “paying agent” and “savings income in 
the form of interest payments”, as well as the administrative burden on paying agents and on 
MS, the need to safeguard MS' tax revenue and the competitiveness of the EU financial sector. 
Any delay in finding solutions for ensuring fair er and more consistent coverage of the 
measures, could result in future more evident market distortions betw een comparable products 
and investment vehicles. 
For the three MS operating the tr ansitional regime (as well as for those non-EU territories and 
countries cooperating in the form  of a withholding tax) the time constraint is of particular 
importance since the risk of distortion between co mparable products will increase in parallel 
with the increase of the rate of the withholding tax to 35% from 1 July 2011. 
Besides the loopholes mentioned above, the consultation with market operators has also 
revealed that the application of the provisions of the EUSD by paying agents may in certain 
cases be burdensome because of lack of clar ity. "This is the case of (i) the definition of 
'interest payment' and 'paying agent', (ii)  the definition of 'residual entities' ( to be considered 
as paying agents on receipt of an interest payment ) and (iii) the formulae that may be used in 
different Member States to determine whether a fund or a particular f und event falls under the 
Directive", as it has been pointed out by th e European Banking Federation (EBF), which 
represents most of the paying agents already involved in the application of the EUSD. 
The following table provides a list of the identified problems according to the need for action: 
Table 1: Hierarchy of identified problems 
1. Use of intermediary structures not cove red by the present scope, notably some legal 
arrangements , and lack of clarity on the “paying agent on receipt” rule (Art. 4(2));  
2. Different treatment of investment funds wh ich are not authorised UCITS in accordance 
with Directive 85/611/EEC ("non-UCITS"), depe nding simply on the legal form of these non-
UCITS (incorporated always excluded from th e scope of the EUSD whilst non-incorporated 
are always included)  
3. Use of comparable products to debt claims (certain structur ed products and certain life 
insurance contracts) 
4. Deficiencies in the rules for identification of beneficial owners, notably concerning the 
determination of their residen ce for the purpose of the EUSD; 
5. Coping with the use of conduit vehicles established in third countries in a way which is 
coherent with freedom of capital movements (par allel need to replace the certificate procedure 
to avoid the withholding tax with the simple st procedure of voluntary disclosure of 
information to the tax authorities) 
6. Lack of statistics from MS. Too limited use of  the Tax Identification Number of beneficial 
owners which make the information more diff icult to be used by the MS where they are 
resident. 
 
EN 5   EN 4. POSSIBLE SOLUTIONS  
When assessing the various options , it should be kept in mind th at the EUSD essentially relies 
on paying agents for the execution of its provision s. Therefore, due account has to be taken of 
the Lisbon Strategy and the better regulation in itiative, which involves, for example, limiting 
administrative burdens and unnecessary costs for businesses, as well as of the principle of 
proportionality. MS should therefore be prep ared to agree on solutions whereby any 
additional administrative burden for making the provisions of th e EUSD more effective would 
be placed as far as possible on the tax administ rations, which would benefit from an increase 
in tax revenue, or on market operators that ar e currently less involve d, rather than on those 
market operators (such as banks and asset managers) that already make a significant 
contribution to the functioning of the EUSD.  
Another constraint is the relatively limited territorial coverage of the EUSD as well as of the 
Agreements providing for the same or equivale nt measures. It is difficult to make a proper 
assessment of the effects that any extension of  the scope of the EUSD could have on capital 
flight to third countries. Even if  the examination of the availabl e data does not establish that 
the application of the Directive led to any cha nge in the geographical composition of interest-
bearing savings, any option for strengthening the effectivene ss of the EUSD should take 
careful consideration of th e international aspects. 
The Commission continues to pur sue the objective of promoti ng the application, by important 
non-EU financial centres, of meas ures equivalent to those applied by the MS. However, it is 
also relevant to consider, while  having due regard to the free  movement of capital laid down 
in the EC Treaty, whether provisions should be added aimed at tackling the attempts of EU 
resident individuals to circumvent the EUSD by channelling interest payments, made in the 
EU, through untaxed “shell” entities  or arrangements located outside  the territory of the EU or 
that of the jurisdictions applying equivalent or the same measures to those agreed at EU level.  
Taking this into account, the Commission services  have identified the following four options 
with their respective advantages and disadvanta ges (the impact of the different options is 
summarised in table 2 at the end of this document): 
Option 1 – No action  
Option 1 Action 
No action Maintaining the status quo, i.e. "Do nothing" 
Option 2 – Amendments to ensure a better implementation of the unanimous agreement 
reached by the Council on 27 November 2000 about what should be the substantial content 
and aim of the EUSD   
Option 2 basically means using the 27 Nove mber 2000 Council conclusions on what should 
have been the content of the then future  EUSD as a benchmark, seeking to close 
unintentional  loopholes.  
 
EN 6   EN Option 2 Action 
Amendments to ensure better 
coverage according to Council conclusions of 27.11.2000 
Limiting the administrative burden for 
paying agents in respect of the same conclusions - Extension to all collec tive investments vehicles 
- Extension of paying agent on receipt rule to legal 
arrangements (trusts)  - "Home country rule" and solution to the "passive 
receipt" issue 
Option 3 – The same amendments as those under option 2, in combination with amendments to close as far as possible all l oopholes and extend the coverage to all products 
which can be assimilated to interest-bearing instruments 
This option involves extending the scope of the EUSD to benef its from those life insurance 
contracts which are competing with debt claims and invest ment funds. It also involves 
extending the scope to income from those securi ties which are equivalent to debt claims, 
because virtually all of the capit al invested is protected at the end of the duration of the 
contract, and because the return  on capital is defined at the issuing date although the product 
is not formally composed of debt claims. 
The 'look-through approach' for beneficial owners  would only apply to payments to certain 
structures established in select ed non-EU jurisdictions which ar e not effectively taxed there. 
Option 3  Action 
Amendments to close as far as 
possible all loopholes and to prevent distortions - Extension not only to all investment funds, but also 
to securities equivalent to debt claims and to those life 
insurances with low biometri c risk investing in debt-
claims, funds and equivalent securities 
- Extension of the “paying ag ent on receipt” rule not 
only to arrangements (trusts) but also to untaxed entities with legal personality (such as many foundations) 
- “Look through approach” fo r payments to certain 
untaxed structures established in certain third countries or jurisdictions. Eliminating the certificate 
procedure for avoiding the withholding tax. 
- Making more use of the available information for 
establishing the residence of  the beneficial owner.  
 
 
 
EN 7   EN Option 4 – Amendments to enlarge the scope of  the EUSD to include all legal persons and 
all savings income  
At the Ecofin Council in March 2008, a number of MS expressed their wish to extend the 
scope of the EUSD far beyond the Council co nclusions of 27 November 2000. However, 
there are certain constraints to be considered: 
—Withholding tax (even if transitional for three MS) is a suitable mech anism only if the net  
income is known. This is rarely the case for form s of income like capital gains. Also, the rules 
on capital gains taxation vary considerably. The levying of a withholding tax on the full sales 
proceeds would be disproportionate.  
— Covering dividends and all investment inco me payments to corporate recipients, as 
suggested by at least one MS, could lead to multiple reporting and to multiple layers of 
withholding tax. 
The general framework for administrative coope ration (Directive 77/799 /EEC and its possible 
amendments), based only on information excha nge, would seem more appropriate for these 
income payments. 
Option 4 Action 
Much broader scope  Extension to paym ents to all legal persons and to all 
types of investment income (dividends, capital gains, “out payments” from genuine life insurance contracts and pension schemes, etc) 
5. PREFERRED OPTION AND CONSEQUENT POLICY ISSUES  
After the analysis and consultation process, opt ion 3 appears to be the preferable option at 
present. The first option (i.e. no action) shoul d be rejected for not closing the current 
loopholes in the EUSD that ha ve a potential negative impact on public revenues and on 
competition. Furthermore, some market operators consider that some aspects of the EUSD need to be clarified. 
In comparison with option 2, the costs that would be incurred under option 3 by current 
paying agents and new paying agents should be outweighed by less dist ortion between similar 
products and by a better impact on the budget of MS.  
Option 4, although more comprehensive than opti on 3, would be more costly and could lead 
to redundancies and do uble withholding. Therefore, option 4 does not seem to respect the 
principle of proportionality with rega rd to the objectives  of the EUSD.  
Any amendments to the scope of the EUSD woul d make necessary a review of the agreements 
with the 10 dependent and associat ed jurisdictions that apply the same measures. As far as the 
5 non-EU countries that apply equivalent meas ures are concerned, the Council would have to 
assess whether the current agreements would still  provide or not for equivalent measures to 
the amended EUSD. However, it seems that so me of the proposed amendments under option 
3 (notably concerning th e "paying agent on receipt" mechan ism) and definitely most of the 
 
EN 8   EN proposed amendments under option 4 would make it advisable to en sure a parallel change in 
the agreements signed with these 5 non-EU countries. 
Table 2: Condensed overvi ew of the IA analysis  
Available Options MS' budget 
protection Efficiency Financial Market  
Option 1 - 
(risk of budgetary 
losses) ≈ 
(no additional administrative 
burden but maintenance of 
existing one) 
- 
Poor statistics 
- 
Lack of clarity - 
(potentially more 
distortions) 
Option 2 + 
(better protection)  - 
(greater administrative 
burden) 
+ 
More clarity/ Better statistics  + 
(Less distortions between 
savings products)  
Option 3  + 
(better protection) 
 
++ 
Horizontal equity  - 
(greater administrative 
burden) 
+ 
More clarity/Better statistics 
 ++ 
(Less distortions between 
savings products with debt-
claim features and/or 
capital protection/Less 
distortions between paying 
agents already covered and 
other entities and 
arrangements)  
Option 4 + 
(better protection) 
 
+++ 
Horizontal equity  - - 
(greater administrative 
burden) 
- 
Redundancy of information 
and multiple layers of 
withholding tax 
+ 
More clarity/Better statistics +++ 
(Less distortion between all 
savings products and 
intermediate structures)