Opinion of the Economic and Social Committee on the "Proposal for a Council Directive to ensure effective taxation of savings income in the form of interest payments within the Community"
Date: 2001-11-28
Institutions: European Economic and Social Committee
Subjects: EU Member State, approximation of laws, income, interest, savings, tax on income

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4. Conclusion

The Committee welcomes the Commission document.
4.1.
It is evident that the Commission has gone to considerable
lengths to ensure the proper implementation of the new

Structural Fund Regulations with regard to Objective 1 pro-
grammes. However, it is essential that this effective beginning
to the new programming phase is reinforced throughout the
period of the programme by timely reporting, monitoring and
evaluation of outcomes in the regions themselves.

Brussels, 28 November 2001.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on the ‘Proposal for a Council Directive to
ensure effective taxation of savings income in the form of interest payments within the
Community’

(2002/C 48/13)

On 30 August 2001, the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 13 November
2001 (rapporteur: Mr Ravoet).

At its 386th plenary session held on 28 and 29 November 2001 (meeting of 28 November 2001), the
Economic and Social Committee adopted the following opinion by 117 votes with 3 abstentions.

1.

Introduction

of interest payments within the EU. The Economic and Social
Committee issued an opinion on this proposal on 24 February
1999 (1).

The proposal for the Directive under review seeks to
1.1.
ensure effective taxation in the EU of income from savings in
the form of interest payments. More precisely, the aim is to
bring about effective taxation of interest payments made in a
Member State to a beneficial owner (individual) resident in
in accordance with the national
another Member State,
legislation of the latter Member State (referred to below as the
‘Member State of residence’).

2. General background

2.1.
In line with the ECOFIN Council conclusions of
1 December 1997 (2), the Commission based its proposal on
the ‘co-existence model’, whereby each Member State would
be able to choose between applying a withholding tax on
interest payments made to individuals who are resident in
other Member States or providing information to the beneficial
owners’ Member State of residence, with a view to enabling a
taxation to be levied.

This proposal for a Directive replaces that published
1.2.
by the Council on 20 May 1998 which sought to ensure a
minimum of effective taxation of savings income in the form

(1) OJ C 116, 28.4.1999, p. 18.
(2) OJ C 2, 6.1.1998, p. 1.

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2.2.
At a later stage, following the acceptance at the Helsinki
European Council held in December 1999 (1) of the principle
that ‘all citizens resident in a Member State of the European
Union should pay the tax due on all their savings income’, the
Member States agreed at the Feira European Council (2) that
the exchange of information, on as wide a basis as possible
should be the ultimate objective within the EU. Belgium,
Luxembourg and Austria nonetheless retained the possibility
to operate a withholding tax system for a certain period,
provided that an appropriate percentage of the revenue from
it was transferred to the tax collection bodies of the relevant
Member States of residence.

2.3.
It was also agreed that, as soon as agreement had been
reached on the substantial content of the Directive, the Council
presidency and the Commission would immediately enter into
discussions with the USA and key third countries (Switzerland,
Liechtenstein, Monaco, Andorra and San Marino) to promote
the adoption of equivalent measures in those countries. At
the same time, the Member States concerned committed
themselves to promoting the adoption of the same measures
in all the main dependent or associated territories (Channel
Islands, Isle of Man and dependent or association territories in
the Caribbean).

2.4.
The ECOFIN Council reached agreement on the abov-
ementioned ‘substantial content of the Directive’ at its meeting
in Brussels on 26 and 27 November 2000 (3).

The Commission supported the new approach adopted
2.5.
by the Council. As the new approach clearly differs from
the earlier principles, the Commission therefore decided to
withdraw its 1998 proposal. The new proposal, which aims to
reflect as closely as possible the agreement between the
Member States, was published on 18 July 2001.

3. Gist of the proposal

3.1.
The proposal seeks to ensure effective taxation of
savings income in the form of interest payments received by

(1) Presidency conclusions of the Helsinki European Council of 10
and 11 December 1999. Press release No. 00300/1/99 of
11.12.99, published on the website of the Council of the European
Union (http://ue.eu.int).

(2) Annex IV to the Presidency conclusions of the Santa Maria da
Feira European Council of 19 and 20.6.2000. Press release
No. 200/1/00 of 19.6.2000, published on the website of the
Council of the European Union.

(3) Conclusions of the ECOFIN Council of 26 and 27 November
2000. Press release No. 13861/00 (Presse 453) of 26.11.2000,
published on the website of the Council of the European Union.

savers who are EU residents (the ‘beneficial owners’ of the
income) from a Member State other than their Member State
of residence. It does not concern national regimes for taxing
income from savings.

In the proposal, the term ‘beneficial owner’ is taken to
3.2.
mean individuals who receive interest payments for their own
benefit. By extension, the proposal will also be applicable in
cases where the interest is paid to particular ‘entities’ which are
not legal persons, are not subject to ordinary law provisions
on business taxation and are also not undertakings for
collective investment in transferable securities (UCITS) (see
point 3.6 below).

3.3.
Every individual receiving an interest payment will be
regarded as receiving the payments for his own benefit, unless
he demonstrates that the opposite is the case. This may be the
case for example, when the recipient acts as a paying agent
(see points 3.5 and 3.6 below) for another legal person, a
UCITS or another entity referred to in the proposal. It is also
the case if the recipient acts on behalf of another individual.

3.4.
All beneficial owners must be properly identified and
their place of residence must be established. The proposal sets
out specific standards in this field which are to constitute
minimum standards for the Member States. In this context, a
distinction is drawn between contractual relations entered into
before the date of
the proposal and
implementation of
contractual relations entered into after the date of implemen-
tation. As regards the first category of relations, use is made of
information made available in pursuance of the provisions of
the Directive on the prevention of money laundering. Specific
rules are set out in the case of the second category of
contractual relations.

3.5.
The Directive has to be implemented by the paying
agent. The party which collects information or applies the
withholding tax is thus the economic operator who pays
interest to the beneficial owner or who secures the payment of
interest for the immediate benefit of the beneficial owner.
Paying agents are generally financial institutions, but in cases
where the payment is made directly to the beneficial owner by
the debtor, the latter is regarded as the paying agent.

Any entity which is not a legal person, which is not
3.6.
subject to ordinary law provisions on business taxation, which
is not a UCITS and which does not opt to be treated as a
UCITS is also regarded as a paying agent. Such a body is
regarded as a paying agent at the moment when interest
payments are received or when payment is demanded. The
proposal for a Directive therefore has to be implemented at
that juncture (system known as ‘paying agent upon receipt’).
Generally speaking, the entities involved here are not subject
to very strict control by the tax authorities. By regarding these
entities as paying agents, they are brought within the scope of
the proposal and made subject to it.

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3.7.
The new proposal also sets out its own definition of
‘interest payment’ which thus differs from the definitions used
in each Member State. The new definition does in fact
cover all income from debt-claims, including income from
capitalisation bonds and zero-coupon bonds. In such cases the
sum involved is the amount of the income realised at the sale,
refund or redemption of the debt-claims. All interest payments
made within the EU are covered, irrespective of the place of
establishment of the debtor.

The definition also covers income deriving expressly
3.8.
from interest payments (application of
the ‘look-through
approach’) distributed by UCITS, entities referred to in
point 3.6 above (which have opted to be treated as a UCITS)
and collective investment undertakings from outside the EU.

Income realised from the sale, refund or redemption of shares
or units in the above-mentioned UCITS, entities or institutions,
provided that these bodies have invested more than 15 %
(40 % during the 7-year transitional period) of their assets in
debt-claims, also comes with the field of application of the
Directive. In these cases the amount of the income realised
represented by interest payments or — if this latter amount is
not known — the whole amount realised is regarded as an
interest payment for the purposes of the Directive.

3.9.
In those Member States which have opted to exchange
information, the paying agents are to collect all useful infor-
mation on the interest payments and communicate this
information to their national competent authorities.

3.10.
The abovementioned competent authority shall, in its
turn, pass on this information to the competent authority in
the relevant Member States of residence. This information
must be communicated on an automatic basis at least once a
year, within six months following the end of the tax year for
the income concerned.

aim in view, provision must also be made in the three Member
States concerned for the application of the procedure referred
to in point 3.9 above (in such cases the ‘beneficial owner’
authorises the paying agent to forward the information to the
tax authorities) or the use of a certificate issued by the
competent authority of the beneficial owner’s Member State of
residence.

3.13.
75 % of the revenue of the withholding tax must be
transferred to each Member State of residence concerned,
within six months following the end of the tax year. 25 % of
the tax revenue accrues to the Member State levying the
withholding tax.

3.14.
During the transitional period, the Member States of
residence are obliged to make provision for a procedure for
preventing double taxation.

3.15.
Under the ‘grandfathering clause’, bonds and other
negotiable loan securities and the interest payments accruing
from them are excluded from the scope of the proposal if they
were first issued before 1 March 2001 or if the issuing
prospectuses were certified before that date. If a further issue
or ‘tap’ is made, special provisions apply to those which are
made on or after 1 March 2002. In cases where such further
issues are made by a government on or after 1 March 2002,
the entire issue is then covered by the Directive. In the case of
issues made by other (private) bodies, on the other hand, only
‘taps’ made on or after this date are covered by the Directive.
These exceptions will apply only during the seven-year tran-
sitional period referred to in point 3.11 above.

3.16.
During the transitional period, Belgium, Luxembourg
and Austria may refrain from levying a withholding tax
on interest payments in respect of debt-claims issued by
international organisations, if this would be contrary to the
rules laid down in international treaties signed by these states.

3.11.
Belgium, Luxembourg and Austria will subject inter-
est payments to a withholding tax during a transitional period
of seven years following the entry into force of the Directive.
During this period these Member States retain the right not to
communicate information to the other Member States but
they are entitled to receive such information.

3.17. Member States are free to levy other types of with-
holding tax, (e.g. debtor-type withholding tax) on this type
of income. These types of withholding tax would not be
incompatible with the withholding tax provided for in the
proposal (see point 3.11 above).

During the first three years of the transitional period, the
withholding tax will be levied at a rate of 15 %, rising to 20 %
for the remainder of the transitional period.

3.18. Member States are to bring into force the requisite
national measures to comply with this Directive by 1 January
2004.

3.12.
In the abovementioned Member States beneficial
owners must always have the possibility of not being subject
to the payment of withholding tax. In such cases they will then
be taxed only in their Member State of residence. With that

The Commission is to report to the Council every
3.19.
three years on the operation of this Directive. The requisite
amendments will be proposed on the basis of these reports.

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4. General comments

4.1.
The Committee has already set out its views on the
taxation of cross-border interest payments in the EU in a
number of opinions,
including the opinion on direct and
indirect taxation (1), the opinion on taxation in the European
Union — Report on the development of tax systems (2) and
the opinion on the previous proposal for a Directive (3).

4.2.
The Committee notes that since the publication of the
previous proposal for a Directive in 1998 all the parties
involved have worked very hard on this matter. The European
Council, the ECOFIN Council, the successive Council presi-
dencies and the Commission and its departments have done
their utmost to achieve progress in this field and a remarkable
degree of progress has been attained.

4.3.
The subject of the present proposal forms part of
the ‘tax package’ agreed upon by the ECOFIN Council on
1 December 1997. This subject, together with the code of
conduct for business taxation and an EU regime for the
payment of interest and royalties, between enterprises, are
regarded in principle as forming one indissoluble package. It
has also been agreed that work on the different elements of
the tax package should be carried out in accordance with a
parallel timetable. The aim is to achieve,
if possible, final
agreement on the whole tax package by 31 December 2002,
at the latest. It is, in the Committee’s view, very important to
adhere to this principle of parallel progress in the work on the
three parts of the tax package. Coordination of the taxation of
savings in the EU is also a key factor which will enable progress
to be made in a number of other integration processes at
European level.

Attention is also drawn to the fact that two Member
4.4.
States, namely Austria and Luxembourg, have stated that they
will only endorse the Directive on the taxation of savings
income when a binding decision has been taken on the roll-
back of the 66 measures taken into consideration within the
framework of the implementation of the code of conduct (4).

The Committee welcomes the proposal for a Directive
4.5.
under review. Opting for the ultimate objective of generalising

the mutual exchange of information between the Member
States would make it possible to levy tax on interest payments
received in other states at the same rate of income tax to which
the beneficiary is normally subject. Any unfair competition in
respect of taxation could thus be eliminated.

The ESC notes that the proposal forms part of a broader tax
package, that implementation of the three component parts of
the package is inter-dependent and that work in the various
fields will be carried out according to a parallel timetable. The
ESC also takes note of the political declarations made by
particular Member States.

4.6.
The proposal was formulated following intense dis-
cussions between the Member States (primarily at the level of
the European Council and ECOFIN Council); the new text
reflects the results of these discussions. Now that a political
balance has been achieved, the ESC has no intention of calling
into question the common standpoint agreed upon by the
Member States. Such an approach would be all the more
inappropriate given the fact that the earlier proposals also
failed to come up with an ideal solution. These proposals did,
on the contrary, allow certain differences between capital-
importing and -exporting Member States to continue to exist
and particular problems, such as the possible relocation of
capital markets (e.g. the eurobond markets) had either not
been resolved or at least not been adequately resolved. The
ESC therefore intends to confine itself to making a number of
general observations and to dealing with more technical
matters.

The ESC takes the view that it was absolutely right for
4.7.
the agreement between the Member States (5) to embrace
concerns over the maintenance of the competitiveness of
European financial markets. Steps must be taken to ensure
that European financial centres are not placed at a disadvan-
tage, with the attendant risk that capital is transferred outside
the EU. The ESC supports the statement in the Conclusions of
the Presidency that only once ‘sufficient reassurances with
regard to the application of the same measures in dependent
or associated territories and of equivalent measures in the
named countries have been obtained, and on the basis of
a report,
the Council will decide on the adoption and
implementation of the Directive no later than 31 December
2002 and do so by unanimity’ (6). This is, in the Committee’s
view, a clear and crucial policy element which should play a
major — if not decisive — role in the final phase of the
decision-making process.

(1) OJ C 82, 19.3.1996.
(2) OJ C 296, 29.9.1997.
(3) OJ C 212, 28.4.1999.
(4) Conclusions of the ECOFIN Council held in Brussels on 26 and
27 November 2000 — Press release 13 861/60, statements for
the Council minutes a), 1.

(5) See point 2.8 above.
(6) Conclusions of the Presidency in respect of the European Council

held in Santa Maria da Feira on 19 and 20 June 2000.

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4.8.
The agreements referred to above also appear to be
important with regard to measures to tackle and prevent tax
avoidance and/or tax evasion committed by EU residents.
These agreements are thus of crucial importance with a view
to protecting the tax incomes of the Member States. It would
indeed be just too easy if tax-payers were able to substantially
reduce or even totally avoid the tax which they were due to
pay by transferring their capital to areas within the EU where
the Directive was not in force, to dependent or associated
territories of Member States or to other financial centres,
which are frequently situated in nearby countries.

4.9.
It will clearly not be easy to work out the technical
details of the Directive. This does not, however, make it any
less necessary for efforts to be made to achieve an adequate
level of transparency and simplicity. At various points in the
Explanatory Memorandum to the proposal for a Directive to
the need for transparency and simplicity is underlined, as is
also the need for the burden placed on the paying agents to be
kept in check. The question arises, however, as to whether the
present proposal really makes it possible to meet this objective
and whether account is indeed taken of this concern? In
view of the complex nature of this matter and the real
implementation problems, the question arises as to whether
there are adequate guarantees that the provisions will be
applied without distortions in competition throughout the EU.
Risks of distortions in competition must be avoided not only
in respect of non-EU states but also within the EU itself. With
this aim in view, it would be desirable, for example, to make
available to paying agents in all Member States lists of the
various types of legal persons and categories of entities taxed
on their profits under the general arrangements for business
taxation (cf. Article 2(1)(b) of the draft Directive) which are
not covered by the Directive.

4.10.
It is also essential to avoid distortions in competition
during the transitional period in respect of relations between
those Member States which agree to exchange information
forthwith and the three Member States exempted by virtue of
the fact that they have opted to operate the withholding tax
system. In the case of the latter Member States, implementation
problems for paying agents will indeed have consequences
which are much more far-reaching than in the case of the
other Member States which have to gather information.

The Commission has attached an ‘Impact Assessment
4.11.
Form’
to its proposal. This form deals, above all, with
the possible consequences for enterprises. The Commission’s
assessments are almost exclusively positive. In cases where it
identifies a risk, these risks are too small to take account of or,
according to the Commission, everything possible has already
been done to reduce the detrimental impact. The Commission
adopts a reassuring tone above all as regards the consequences
for the paying agents (including costs and administrative

burdens); considerable concern has, however, been expressed
over this matter, particularly in the financial sector.

The Committee wonders whether it would not be possible to
introduce an improved and more balanced impact-assessment
procedure. By way of example, an appraisal carried out by an
independent third party could enhance the objectiveness and
credibility of the conclusions reached. Attention may be
drawn, for example, to the approach adopted by the European
Central Bank (ECB) which intends to impose additional
obligations on credit institutions in the euro zone in respect of
statistical reports. In such cases the ECB endeavours to gauge
the impact of its plans by means of a procedure within
the Eurosystem (involvement of
the national banks) and
consultations with the sector concerned (fact-finding exercises
are carried out, inter alia, in order to gauge the feasibility of
the plans and a cost-assessment exercise is carried out to assess
the costs and administrative burdens for a number of bodies,
including credit institutions.

4.12.
A generalised system for the exchange of information
between Member States, as provided for in the proposal,
represents a new departure. Such a system has never existed
before, with the result that the application of the system may,
during an initial period, involve a degree of risk. Despite this,
the Committee considers it essential that the system, in the
form provided for in the proposal, should be applicable and
capable of being brought into effect, and that it should make
it possible to achieve the desired result using a proportionate
level of human and other resources. This should be the case in
respect of both the national (usually fiscal) authorities of the
different Member States and the paying agents. It is therefore a
question of making the system both effective and technically
feasible.

4.13.
Consideration of the new provisions shows that there
has been a marked change in the aim of the new draft
Directive. The aim is no longer ‘to ensure a minimum of
effective taxation of savings income in the form of interest
payments within the Community’ but rather to ensure that
this same income is taxed in accordance with the rules of the
Member State of the beneficial owner.

Furthermore, under the new proposal, the withholding tax
provisions are set out in Chapter III of the document under
the heading ‘Transitional provisions’. In the Explanatory Mem-
orandum and the recitals which precede the proposal for a
Directive, it is pointed out that only three Member States may
apply these provisions for a given period ‘in order to allow
them more time to adapt their legislation’ (to bring it into line
with the generalised information-exchange system). This being
the case, the ESC questions this new presentation. The three
Member States which have chosen to apply the withholding
tax system are the very Member States which recognise
professional secrecy on the part of banks or banking secrecy
in tax matters. It is clear that the system which best responds
to the above principles is the withholding tax system.

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Even though it adopts a different point of view in its final
conclusion, the OECD has quite recently reaffirmed the value
of professional secrecy and banking secrecy in tax matters in a
study (1) published last year on improving access for tax
administrations to bank information.

The new text makes no mention of these principles and thus
appears to wish to diminish their value. However, as was
pointed out above, it is vitally important that non-EU states
and dependent or associated territories formulate, at the same
time, provisions which are equivalent or identical in content
and mode of operation. It is obvious that in a number of cases
the likelihood of achieving agreement with the states and
territories concerned is made yet more uncertain if the solution
of introducing a withholding tax is dismissed in advance.

5. Specific comments

5.1.
The ESC points out that the text of the proposal raises
a number of important questions in various fields. Without
wishing, however, to call into question in every case the aims
of the provisions concerned, attention should be drawn to the
problems which will face all of the parties which have to apply
the Directive and, in particular, the paying agents.

An initial problem of this type concerns income from
5.2.
undertakings for collective investment (UCITS) which have
themselves invested at least 15 % (40 % during the transitional
period) of their assets in debt-claims (2). This threshold has
been set in order to avoid including within the scope of the
Directive UCITS investing in debt-claims only as a secondary
activity and to contend with their liquidity requirements. In
order to prevent virtually all UCITS from falling within the
scope of the proposal, the percentage should be substantially
increased. Furthermore, it is not easy for a paying agent who
does not have direct contact with a UCITS to be familiar with
its investment policy.

5.3. Moreover, remaining on the subject of income from
UCITS, the Committee points out that the terminology used in
defining the income in question remains unclear and that
components other than interest in the strict sense of the term,
which are not covered by the aim of the proposal, have been
included in the definition of ‘interest payments’.

5.4.
It is understandable that, with a view to tackling
certain weaknesses in the proposed Directive, specified hybrid
entities (3) (entities which are not a legal person, are not taxed
on their profits under the arrangements for business taxation
and are not UCITS) have been brought within its scope. The
solution put forward is, however, not practical. Furthermore,
the obligations placed upon economic operators paying inter-
est to such entities are excessive. This criticism applies, inter
alia, to the obligation to communicate to the national authority
the amount of the interest paid to the entity.

5.5.
The rules governing the identification of the beneficial
owner (4) are more far-reaching than the usual rules laid down
in connection with measures to combat money laundering.
The additional distinction relating to the moment in time
when contractual relations were entered into does, in any case,
represent a needless complication, and furthermore, it should
be made clear that a paying agent cannot guarantee the
correctness of information relating to the residence for tax
purposes of the beneficial owner. This is the responsibility of
the tax authorities. Moreover, the rules set out in respect of
persons holding a passport from one Member State but having
a residence for tax purposes outside that Member State cannot
be applied in cases where the third state refuses to issue a
residence certificate.

5.6.
Under the proposal, Member States have the option of
requiring paying agents to ‘annualise’ interest, i.e. to calculate
it on an annual basis and to treat such annualised interest as
an interest payment (5). No explanation is given anywhere for
the reasons behind this provision or its objectives. It would
appear to be impossible to implement this provision in practice
and it will actually simply result in the transfer of capital to
other Member States which have not exercised this option.

The ‘grandfathering clause’ (6) draws a distinction
5.7.
between issues which come within the scope of the proposal
for a Directive and other issues. It is in practice far from easy
to draw this distinction, in particular with regard to issues
originating outside the EU. As regards further issues or
‘taps’, the special system applicable to securities issued by
governments or ‘related entities’ be implemented in practice
only if paying agents are provided with additional information
on such ‘related entities’.

(1) Document drawn up by the OECD’s Committee on Fiscal Affairs
entitled: ‘Improving access to bank information for tax purposes’,
published on 12 April 2000. Document DAFFE/CFA (2000)
4/final.

(2) Articles 6(1), 6(2), 6(3), 6(6), 6(7) and 6(8) and point 3.8 above.

(3) Article 4(2) and point 3.6 above.
(4) Article 3 and point 3.4 above.
(5) Article 6(5).
(6) Article 15 and point 3.15 above.

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5.8.
The procedure for preventing double taxation comes
into force whenever a beneficial owner has been subject to a
level of withholding tax which is higher than the tax ultimately
payable in his own Member State of residence. The text of the
proposal does not explicitly indicate whether this principle
also applies in cases where income is exempt from taxation in
the latter state; the text therefore needs to be clarified on this
point.

5.9.
A number of procedures set out in the proposal differ
according to whether they relate to the period before or after
the Directive comes into force. These provisions therefore act
retrospectively. In order to avoid this, the differential treatment
should come into effect from the date of entry into force of
national rules for implementing the Directive.

5.10.
Furthermore, paying agents need to be given sufficient
time between the publication of national rules and their entry
into force in order to enable them to bring their internal
systems into line (above all in the IT field). In the light of the
impact which the Directive will have, a period of a minimum
of one year seems suitable. The current text fails to clarify this
matter. Moreover, it would be best for the entry into force of
the rules and the introduction of the definitive system to
coincide with the beginning of a new calendar year.

5.11.
The Committee likewise draws attention to the fact
that a number of other sources of income, such as particular
insurance benefits, are not covered by the proposal. These
products, which generally cover risks, which are to a certain
extent biometric risks, nonetheless essentially closely resemble
or may be equated with the investments in debt-claims covered
by the proposal, are currently proving to be quite successful.
The only recital to the proposal which deals with this matter (1)
states that: ‘The scope of this Directive should be limited to
taxation of savings income in the form of interest payments
on debt-claims, to the exclusion of the issues relating to the
taxation of pension and insurance benefits’. This recital would
now appear to be rather unconvincing bearing in mind that
shares or units in UCITS are indeed covered by the proposal.
Furthermore, in its recent communication on the elimination
of tax obstacles to the cross-border provision of occupational
pensions (2), the Commission regarded the exchange of infor-
mation, as proposed in the present proposal, as the best way
of safeguarding the tax income of the Member States.

that an information-exchange system, as set out in the proposal
for a Directive, has never previously been applied on such a
scale. Furthermore, the principle of establishing a ‘level playing
field’ should not be pursued only in respect of non-EU states
(see point 4.7) but also within the EU.

In this connection, the proposal provides for the application
of the pro rata principle, whereby income is determined in the
light of the period during which the beneficial owner holds
the debt-claims. The pro rata principle is, however, only
provided for explicitly in the case of the enforcement of the
system of withholding tax (3).

The ESC wonders whether the pro rata principle should not be
applied on a general basis, and therefore also apply in the case
of the enforcement of the exchange of information system.

Under the proposal (4) the information involved in this case
may cover the amount of the interest paid.

This matter is important inasmuch as, in the absence of clear
rules on this subject, quite large differences could occur with
regard to the establishment of the basis on which the Directive
is applied. This could occur, for example, in the case of the
sale of capitalisation bonds after a certain holding period (e.g.
zero-coupon bonds, capitalisation UCITS, etc.). Bearing in
mind the goal of the proposal and the fact that the determi-
nation of the basis on which the Directive is applied is of key
importance to its implementation, no convincing case can be
made for not tackling this issue in the proposal. Furthermore,
differences between the Member States could have a disruptive
effect (see point 4.9).

This same issue could also be raised in cases where income is
expressed in a foreign currency. The proposal does not set out
any conversion rules. Here, too, a clear and unambiguous
solution should be found.

6. Conclusions

5.12.
A further difficulty concerns the establishment of the
basis on which the Directive is to be applied in case of the
payment of interest and the sale, refund or redemption of
debt-claims. This is all the more important in view of the fact

The ESC welcomes the proposal, the ultimate objective
6.1.
of which is the reciprocal exchange of information between
the Member States. This approach will facilitate proper taxation
of the beneficial owner, prevent unfair competition in the
taxation field between the Member States and help to achieve
a fair allocation of tax revenue.

(1) Recital 15.
(2) COM(2001) 214 final.

(3) Article 11(3).
(4) Article 8(2).

C 48/62

EN

Official Journal of the European Communities

21.2.2002

6.2.
The ESC is pleased to note that all the parties involved
in this field have recently made strenuous efforts to resolve
is a compromise which
this issue. The present proposal
expresses the common position of the Member States.

6.3.
It is, in the ESC’s view, desirable for the agreed parallel
programme of work to continue to be pursued so as to enable
final agreement to be reached on the various elements of the
taxation package of 1 December 1997 by the set deadline of
the end of 2002. The present proposal forms part of the tax
package, along with the code of conduct for business taxation
and common rules on interest and royalty payments.

6.4.
The ESC fully endorses the concerns over and the
importance of maintaining the competitiveness of the Euro-
pean financial markets and centres. With this aim in view, the
need to have prior assurance that the same measures will be
applied in the dependent and associated territories and that
equivalent measures will be taken in a number of nearby
and/or key financial centres is of crucial and decisive import-
ance. These agreements are also important in the context
of combating tax evasion and/or fraud committed by EU
residents.

In this connection the ESC welcomes the decision adopted by
the ECOFIN Council at its meeting in Luxembourg on 16 Octo-
ber 2001 providing a mandate to negotiate with the six key
non-EU states, namely the USA, Switzerland, Liechtenstein,
Monaco, Andorra and San Marino, on the question of the

Brussels, 28 November 2001.

taxation of savings in order to secure adoption by these states
of measures equivalent to those to be applied in the EU (1).

The ESC takes the view that the proposal needs to be
6.5.
both simple and effective. It therefore calls upon all the parties
concerned to make a thorough and critical appraisal of the
proposal and propose improvements in respect of all of the
points which could be ameliorated, whilst endeavouring to
contain the cost of implementing the proposal as far as
possible. Governments and paying agents must assume their
responsibility with regard to this matter.

The ESC also takes the view that the field of application of the
proposal for a Directive on the taxation of savings must be as
broad and consistent as possible. As the definition of ‘interest
payment’ given in the proposal already includes interest
accruing directly from debt-claims and indirectly from invest-
ments in certain UCITS, the ESC believes that consideration
should also be given to including in the definition other
investments which may give rise to interest indirectly, such as
certain insurance products.

In conclusion, the ESC takes the view that it is essential
6.6.
for paying agents to be involved as closely as possible in the
further development of this system as they have a key role to
play in its actual
implementation. With this aim in view,
the ESC also asks the Commission to consider making
improvements to the procedure for carrying out the impact
assessment of the proposal and to apply itself to this task.

(1) ECOFIN Council meeting in Luxembourg on 16 October 2001

— Press: 363 — No. 12827/01.

The President

of the Economic and Social Committee

Göke FRERICHS