COMMISSION STAFF WORKING DOCUMENT  Accompanying the  Proposal for a   Council Directive   amending Council Directive 2003/48/EC on taxation of savings income in the form of interest payments - IMPACT ASSESSMENT {COM(2008) 727 final} {SEC(2008) 2768}
Date: 2008-11-13
Institutions: European Commission
Subjects: interest, savings, tax on income, tax system

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 13.11.2008 
SEC(2008) 2767 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying the 

Proposal for a  

COUNCIL DIRECTIVE  

amending Council Directive 2003/48/EC on taxation of savings income in the form of 
interest payments  

IMPACT ASSESSMENT 

{COM(2008) 727 final} 
{SEC(2008) 2768} 

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1. 

SECTION 1: PROCEDURAL ISSUES AND CONSULTATIONS OF INTERESTED PARTIES 

1.1. 

Organisation and timing 

Council  Directive  2003/48/EC  on  the  taxation  of  savings  income  in  the  form  of  interest 
payments  (the  '2003  Directive')  was  adopted  on  3  June  2003.  Its  ultimate  aim  is  to  enable 
savings  income  in  the  form  of  interest  payments  made  in  one  Member  State  to  beneficial 
owners  who  are  individuals  resident  for  tax  purposes  in  another  Member  State  to  be  made 
subject  to  effective  taxation  in  their  State  of  residence.  The  initially  foreseen  date  of 
application  (1  January  2005)  was  postponed  until  1  July  2005.  At  that  date  Andorra, 
Liechtenstein, Monaco, San Marino and Switzerland started to apply equivalent measures to 
those of the 2003 Directive under Agreements signed between each one of these jurisdictions 
and the Community; at the same time all the relevant dependent or associated territories of the 
Netherlands and the UK (ten in all) started to apply the same measures as those of the 2003 
Directive,  under  agreements  signed  by  each  of  them  with  each  of  the  Member  States  at  the 
time.  

Under  Article  18  of  the  2003  Directive  the  "Commission  shall  report  to  the  Council  every 
three years on the operation of this Directive. On the basis of these reports, the Commission 
shall, where appropriate, propose to the Council any amendments to the Directive 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  this  year,  about  fraud  cases  involving 
Liechtenstein,  there  was  a  debate  at  the  Ecofin  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  since  its  entry  into  force  on  1  July  2005…  ".  It  appears,  some 
wealthy  European  individuals  (over  1,000  in  Germany  alone),  with  the  support  of  certain 
financial institutions, evaded taxes by investing in foundations in Liechtenstein since the early 
2000s.  The  tax  probe  in  Germany  unveiled  at  least  50  foundations  of  German  residents  in 
Liechtenstein  with  millions of  Euros in their accounts. Neither the current  provisions of the 
2003  Directive  nor  the  equivalent  measures  included  in  the  savings  taxation  agreement 
between the EC and Liechtenstein covered these cases. 

On  29  April  2008  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" was presented. This working document highlighted the main problems identified and 
possible solutions for refining the scope of the 2003 Directive. At the end of the document, a 
number of key issues needing clarification were listed. It served as basis for an oral report by 
the Commission to the Ecofin Council of 14 May 2008. It was further subject to discussions 
with a group of external experts (see 1.2 below), as well as with representatives of Member 
States  at  a  more  technical  level,  and  was  also  put  on  the  Commission  website  to  enable 
comments from other stakeholders and interested parties. 

The  first  formal  report  under  Article  18  of  the  2003  Directive  was  adopted  by  the 
Commission  on  15  September  2008  [COM(2008)552],  following  a  request  included  in  the 
Council conclusions of 14 May 2008 to submit it to Council at the latest by 30 September. 

The  report  is  accompanied  by  a  Commission  Staff  Working  Document  "presenting  an 
economic  evaluation  of  the  effects  of  Council  Directive  2003/48/EC  on  the  basis  of  the 
available data" [SEC (2008)2420]. This working document provides quantitative approaches 

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to evaluate the functioning of the 2003 Directive. It analyses the evolution of certain proceeds 
from  investments  that  are  covered  by  the  2003  Directive  or  that  contain  elements  falling 
within  its  scope.  In  addition,  the  analysis  looks  at  the  effects  of  the  implementation  of  the 
2003  Directive  on  some  investment  patterns.  The  last  section  of  the  document  offers  a 
statistical analysis of the impact of the introduction of the 2003 Directive on savings and on 
bank deposits. 

There has not been an inter service steering group, but the inter service consultations on the 
above  three  documents  have  involved  five  Directorates-General  (Internal  Market,  Legal 
Service,  Economic  and  Financial  affairs,  Secretariat  General  and  External  Relations).  And 
several  Directorates-General  have  also  been  actively  following  the  work  of  the  group  of 
external  experts  as  well  as  the  discussions  with  Member  States  in  Commission  technical 
working groups (see 1.2). 

It  should  also  be  noted  that  the  European  Parliament  resolution  of  2  September  2008  on  a 
coordinated strategy to improve the fight against fiscal fraud (2008/2033(INI)) 

"34.  Points out that reform of Directive 2003/48/EC must tackle its various loopholes and 
deficiencies, as they prevent discovery of tax evasion and fiscal fraud operations; 

35. 
Calls  on  the  Commission,  in  the  context  of  reform  of  Directive  2003/48/EC,  to 
examine  options  for  reform,  including  investigating  some  widening  of  the  scope  of  the 
Directive with regard to types of legal entity and sources of financial revenue;"  

1.2. 

Consultation and expertise 

Early in 2007 a special Expert Group on Taxation of Savings, with tax experts from banking, 
insurance, investments funds, asset management and related sectors of the European Union, 
was set up to assist the Commission Services in their review of the functioning of the 2003 
Directive. The Expert Group thus consisted of representatives not only from sectors which are 
directly concerned by the 2003 Directive, but also from sectors which provide other savings 
products  or  investment  structures  and  which  could  conceivably  become  concerned,  if  the 
scope of the 2003 Directive were to be extended. 

The Expert Group has met in Brussels four times between March 2007 and May 2008 and its 
mandate expires at the end of 2008. The objective of the group is to provide the Commission 
with  the  viewpoint  of  the  European  Union  market  operators  on  the  application  of  the  2003 
Directive  in  Member  States  and,  at  the  same  time,  facilitate  a  first  scrutiny  of  the  possible 
impact  on  markets  of  any  amendments  to  the  Directive  which  could  come  up  for 
consideration  as  a  result  of  the  review  process.  Also  representatives  of  other  Directorate 
Generals  attended  the  meetings  of  the  Expert  Group  and  were  informally  consulted  in  the 
preparation of working documents submitted to the group. 

In particular, the experts were asked to examine and comment on the main legal and practical 
issues of application of the Directive identified in the discussions with Member States as well 
as on other issues which were brought to the attention of the Commission services (through 
market operators, EC agreements partners, complaints etc.)  

The  various  trade  associations  of  European  market  operators  were  also  asked  to  answer  a 
quantitative  questionnaire  that  was  prepared  with  the  cooperation  of  the  European  Banking 
Federation. More detailed information about the work of this Expert Group can be found on 

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the  following  webpage,  where  there  is  a  special  section  devoted  to  the  "Savings  Directive 
Review", created in the first semester of 2007: 

http://ec.europa.eu/taxation_customs/taxation/personal_tax/savings_tax/savings_directive_review/index_en.htm  

On that webpage i.a. the following documents can be found: a document prepared by 
the  Commission  Services  (early  2007)  with  26  questions  on  policy  issues  to  the 
experts; the written contributions from the experts and from their trade associations 
in response to those questions; a summary made by the Commission services of the 
contributions  thus  made  from  the  trade  associations;  summary  meeting  records;  a 
quantitative questionnaire and a revised version of this  questionnaire prepared with 
the  cooperation  of  the  European  Banking  Federation  and  taking  into  account  the 
suggestions  of  this  and  other  associations;  the  responses  received,  from  eight  trade 
associations,  to  this  revised  questionnaire  (see  tables  2.31  and  2.3.2);  a  working 
document by the Commission services of 27 March 2008 for a meeting with experts 
from Member States (and also discussed in the Expert Group); contributions from a 
number of the experts in response to that document; and contributions notably from 
the European Banking Federation (of 3 July 2008), Comité Européen des Assurances 
(of  28  May  2008  and  3  October  2008)  and  the  European  Fund  and  Asset 
Management  Association  (10  September  2008)  on  additional  issues  which  they 
consider  relevant  for  the  Commission's  assessment  of  the  operation  of  the  2003 
Directive  and  its  future  possible  developments,  taking  into  account  the  discussions 
during  spring/early  summer  this  year.  On  the  webpage  all  interested  parties  have 
been invited to make contributions to the review process and a special e-mail address 
has been provided for that purpose. – However, very few contributions or questions 
were received in that way. 

Informal meetings have also been held with interested parties to capture their views and sound 
out any problems they have encountered. Furthermore, the 2003 Directive has been discussed 
at  a  number  of  seminars  and  conferences  (most  recently  at  the  Annual  Congress  of  the 
International Fiscal Association in Brussels in early September 2008). 

Starting  already  in  2005,  Commission  staff  have  also  been  examining  the  operation  of  the 
2003  Directive  and  its  interpretation  with  experts  from  the  tax  administrations  of  Member 
States  in  two  Commission  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 the substantial content of the 2003 
Directive. The latter group has helped ensure a monitoring of the correct implementation of 
the Directive concerning exchange of information and transfer of funds relating to the revenue 
sharing  arrangements  between  Member  States.  It  has  also  helped  develop  the  format  for 
information exchange. 

The Commission's standards on consultations have thus been met. 

1.3. 

Data availability 

In order to properly assess the functioning of the 2003 Directive and to be able to prepare the 
reports that the Commission has to present to the Council every 3 years pursuant to Article 
18,  the  Commission  needs  to  receive  relevant  statistics  from  Member  States  and  market 
operators. However, the 2003 Directive currently does not contain provisions requiring either 
the Member States or market operators to provide any statistical data. 

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Against this background, the Council, on 26 May 2008, adopted conclusions with respect to 
the list of Statistics that Member States should send to the Commission every year to facilitate 
its  analysis.  These  conclusions  also  committed  Member  States  to  complete,  before  31  May 
2008, the tables based on that list for the fiscal years of 2005 and 2006, in view of the first 
report  that  the  Commission  was  asked  to  send  to  the  Council  in  September  2008.  The 
conclusions of the Council built on a staff working document of the Commission that defines 
the statistics to be provided on a voluntary basis by Member States and the other jurisdictions 
participating to the savings taxation measures. These include:  

•  For countries levying a withholding tax: the tax revenue shared; 

•  For countries exchanging information: the interest payments and sales proceeds reported ; 

•  The number of beneficial owners; 

•  The number of paying agents; 

•  The  part  of  the  total  annual  tax  collected  from  resident  taxpayers  on  interest  payments 

made by domestic paying agents (optional) and 

•  The  part  of  the  total  annual  tax  collected  from  resident  taxpayers  on  interest  payments 

made by foreign paying agents (optional). 

Despite the efforts made by Member States and market operators to provide the Commission 
with  statistics,  the  quality  and  quantity  of  the  statistics  received  are  not  sufficient  (and 
sometimes even inconsistent) to make a detailed quantitative analysis of the Directive during 
its first years of application.  

In parallel, in the framework of the Expert Group on Savings, some of the market operators' 
associations  provided  the  Commission  with  some  start-up  costs  and  recurrent  costs  for  the 
application of the provisions of the 2003 Directive (See tables 2 and 3 below). However, the 
information  provided  does  not  cover  the  whole  sector,  is  partial  and  is  not  really 
representative. 

Finally, alternative data have been collected from Eurostat on the interest payments received 
by individuals as well as from the Bank for International Settlements on bilateral cross-border 
deposits in banks, but both categories include a mix of products or beneficial owners that are 
not  covered  by  the  Directive.  Table  8  in  the  annex  summarises  the  availability  and 
shortcomings of those data. 

The  examination  of  the  available  data  in  the  Commission  Staff  Working  Document 
(SEC(2008)2420)  presenting  an  economic  evaluation  of  the  effects  of  Council  Directive 
2003/48/EC does not establish that the application of the Directive led to any change in the 
geographical composition of interest-bearing savings. 

The  lack  of  quantitative  data  is  not  "per  se"  an  obstacle  to  make  a  proper  analysis  of  the 
problems  identified  during  the  consultation  process  held  with  Member  States  and  market 
operators  or  to  propose  adequate  solutions.  Furthermore,  there  is  a  need  to  anticipate 
developments  based  on  the  input  of  the  stakeholders,  which  clearly  recognise  the  need  for 
improvements in the system.  

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2. 

SECTION 2: PROBLEM DEFINITION 

2.1.  What is the issue or problem that may require action? 

The ultimate aim of the 2003 Directive is to allow each Member State to apply its domestic 
tax  provisions  to  its  resident  individuals  on  interest  payments  that  these  individuals  receive 
from paying agents established in other Member States. To achieve this, the 2003 Directive 
builds on an automatic exchange of information between Member States on such payments. 
However,  during  a  transitional  period,  three  Member  States  (Austria,  Belgium  and 
Luxembourg) are allowed to apply a withholding tax and share the revenue with the Member 
State  of  residence  of  the  individual  concerned  instead  of  providing  information.  The 
transitional period does not expire at a specific date but is linked to further conditions being 
fulfilled  in  relation  to  certain  other  jurisdictions.  Under  the  Agreements  for  the  same  or 
equivalent  measures  to  those  of  the  2003  Directive,  mentioned  above,  the  non-EU  parties 
either provide information to the EU Member States or levy a withholding tax with revenue 
sharing. 

Pursuing the aim of the 2003 Directive would require that interest payments obtained by an 
individual through an intermediate vehicle are given the same treatment as interest payments 
received directly by the individual. The same applies to those income payments that can be 
considered  equivalent  to  interest  payments  because  they  arise  from  savings  products  with 
similar  levels  of  risk  and  liquidity  as  debt  claims.  If  consistent  treatment  of  other 
comparable  situations  is  not  achieved,  not  only  is  the  effectiveness  of  the  Directive 
endangered, but there can be distortions in competition between comparable savings products 
and structures.  

The 2003 Directive has only been in application for three years. The Council, when adopting 
the unanimous conclusions on 27 November 2000 (see description of option 2 in section 4.1 
below), on what should be the coverage of the future Directive, made a deliberate choice of 
principle to limit the scope to interest payments (or payments of interest originating income 
from  investment  funds)  made  to  individuals,  and  to  rely  on  the  cooperation  of  market 
operators  acting  as  paying  agents  either  at  the  moment  when  the  interest  is  paid  out  to  the 
beneficial  owner  or,  under  specific  conditions,  when  the  interest  is  received  by  the  entity 
concerned ("paying agent on receipt"). But the wish to provide, as far as possible, simple and 
clear  rules  for  these  market  operators  led  to  the  measures  being  drafted  in  a  way  which, 
unintentionally, further limited their actual coverage. In some cases, more attention seems to 
have been devoted to the formal aspects of transactions than to their economic substance and 
to the actual way in which the market operates. Conversely, provisions such as the so-called 
“paying agent on receipt” mechanism [Article 4(2)] seem not to have been fine-tuned so as to 
provide  market  operators  with  the  degree  of  legal  clarity  needed  to  achieve  the  expected 
results. Article 4(2) currently defines this "paying agent on receipt" only in a residual way, by 
using  a  reference  to  conditions  (lack  of  legal  personality  and  benefits  not  taxed  under  the 
general  rules  for  business  taxation)  which  can  be  very  difficult  to  assess,  notably  by  the 
upstream economic operators which are given some obligations on the payments made to the 
entities concerned in cross-border situations.  

The review process has shown that the coverage of the 2003 Directive is not as wide as was 
intended  according  to  the  unanimous  Council  conclusions  of  27  November  2000,  and  that 
there are loopholes in the provisions of the Directive. Such loopholes are detrimental to the 
effectiveness of the 2003 Directive, whether it is applied in the form of automatic information 
exchange or, transitionally, through the levying of a withholding tax. Furthermore, experience 

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shows that some aspects of the 2003 Directive should be clarified to facilitate the application 
of its provisions by paying agents, thus reducing their administrative burden. This is notably 
the case, as indicated previously, for the special rule of paying agent on receipt in Article 4.2 
of the Directive.  

There is evidence that, for payments made within the European Union, the 2003 Directive can 
be circumvented by EU resident individual investors by: 

making use of intermediate investment vehicles (legal persons or arrangements) which 
1. 
are  not  covered  by  the  current  formal  definition  of  beneficial  owner  (that  refers  only  to 
individuals) or which are not currently compelled to act as paying agents, and/or 

rearranging  their  portfolio  financial/investment  in  such  a  way  that  income  remains 
2. 
outside  the  definition  of  interest  payments  under  the  Directive,  whilst  benefiting  from 
limitations  of  risk,  flexibility  and  agreed  return  on  investment  that  are  equivalent  to  debt 
claims. 

In  relation  to  the  second  issue,  it  should  be  recalled  that  the  original  choice  to  exclude  all 
innovative financial products from the scope of the Directive (ECOFIN Council conclusions 
of May 1999 and November 2000) was accompanied by an express statement that this choice 
should be re-examined on the occasion of the first review of the Directive, the aim being to 
find a definition covering all securities that are equivalent to debt claims so as to ensure the 
effectiveness of the Directive in a changing environment and to prevent market distortions. It 
is  also  worth  mentioning  that  domestic  tax  systems  have  evolved  over  the  last  few  years  to 
assimilate  the  treatment  of  income  from  some  types  of  innovative  financial  products  to 
interest from debt claims. 

Besides  the  loopholes  mentioned  above,  the  consultation  with  market  operators  has  also 
revealed that the application of the provisions of the Directive by paying agents may in certain 
cases  be  burdensome  because  of  lack  of  clarity.  "This  is  the  case  of  (i)  the  definition  of 
'interest payment' and 'paying agent', (ii) the definition of 'residual entities' (i.e.: the entities to 
be  considered  as  paying  agents  upon  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 fund 
event falls under the Directive", as has been pointed out by the European Banking Federation 
(EBF), which represents most of the paying agents already involved in the application of the 
Directive across the EU. 

Finally, it has to be mentioned that the Directive at present does not require Member States to 
provide the Commission with relevant statistics respectively on the information exchange or 
on the withholding tax aspects of the Directive. This lack of information makes it difficult to 
properly assess the effectiveness of the Directive. 

The following table provides a list of the identified problems and/or loopholes in the current 
Directive according to their relevance and the need for action: 

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Table 1: Hierarchy of identified problems 

1.  Use  of  intermediary  structures  not  covered  by  the  present  scope,  notably  some  legal 
arrangements (which can't legally speaking be defined as "entities"), and lack of clarity on the 
paying  agent  upon  receipt  rule  for  the  economic  operators  which  are  directly  or  indirectly 
involved (see option 3 in section 4)  

2.  Different  treatment  of  investment  funds  which  are  not  authorised  UCITS  in  accordance 
with Directive 85/611/EEC ("non-UCITS"), depending simply on the legal form of these non-
UCITS  (incorporated  always  excluded  from  the  scope  of  the  2003  Directive  whilst  non-
incorporated are always included) (see options 2 and 3 in section 4) 

3.  Use  of  comparable  products  to  debt  claims  (certain  structured  products  and  certain  life 
insurance contracts) (see option 3 in section 4) 

4.  Deficiencies  in  the  rules  for  identification  of  beneficial  owners,  notably  concerning  the 
determination of their residence for the purpose of the 2003 Directive (see option 3 in section 
4) 

5.  Coping  with  the  use  of  conduit  vehicles  established  in  third  countries  in  a  way  which  is 
coherent  with  freedom  of  capital  movements  (parallel  need  of  replacing  the  certificate 
procedure to avoid the withholding tax with the simplest procedure of voluntary disclosure of 
information to the tax authorities) (see option 3 in section 4) 

6. Lack of statistics from Member States. Too limited use of the Tax Identification Number of 
beneficial  owners  which  makes  the  information  more  difficult  to  use  by  the  Member  State 
where they are resident (see option 3 in section 4) 

2.2.  What are the underlying drivers of the problem? 

Recent  events,  such  as  the  tax  fraud  cases  in  relation  to  Liechtenstein  foundations,  have 
demonstrated clearly how important it is to establish international cooperation with a view to 
preventing,  in  the  direct  taxation  area,  fraud  and  evasion  linked  to  cross-border  financial 
investments.  The  2003  Directive,  together  with  the  related  Agreements,  should  certainly  be 
considered  as  an  important  step  in  this  process,  developing  further  the  principles  already 
provided  for  by  Directive  77/799/EEC  on  mutual  assistance  between  tax  authorities  in  the 
field of direct taxation. This Directive is designed to allow the flow of information in relation 
to  direct  taxation  (income  tax,  company  tax  and  capital  gains  tax),  together  with  Insurance 
Premium Tax, between the tax authorities of Member States. The Directive enables Member 
States  to  co-ordinate  their  investigative  action  against  cross-border  tax  fraud  and  carry  out 
more procedures on behalf of each other, but at present Member States are allowed to make 
the  exchange  of  information  conditional  on  some  aspects  of  their  internal  law  (e.g. 
confidentiality of bank information). 

The  2003  Directive  builds  on  the  Mutual  Assistance  Directive  but  ensures  cooperation 
independently  of  the  existence  of  specific  national  conditions.  It  signifies  an  important  step 

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forward in that, for the first time, a coordinated effort in the direct tax area has been agreed 
and  simultaneously  applied  by  a  wide  number  of  jurisdictions  with  different  interests  and 
traditions.  However,  it  is  clear  that  a  further  strengthening  of  the  mutual  assistance  rules  is 
needed to combat tax fraud and evasion. 

In  the  era  of  globalisation,  the  relative  ease  with  which  customer  relationships  can  be 
established and maintained via the internet and the advantage of open markets make Member 
States’  tax  systems  more  vulnerable  to  tax  evasion.  Even  if  it  is  difficult  to  make  an 
estimation of the bulk of tax evasion involving territories not covered by the 2003 Directive 
or bilateral agreements on savings taxation, it was very apparent from the beginning that the 
savings  taxation  mechanism  should  be  coupled  with  an  extension  of  the  same  or  equivalent 
measures  to  as  many  important  financial  centres  as  possible.  This  international  aspect  has 
been underlined by the Council's conclusions of 14 May 2008 on good governance in the tax 
area  whereby  the  Commission  has  been  mandated  to  ensure  that  relevant  agreements  with 
third  countries  contain  clauses  committing  those  countries  to  the  principle  of  exchange  of 
information. 

It is difficult to make a proper assessment of the effects that any extension of the scope of the 
2003 Directive could have on capital flight to third countries. As explained before in section 
1.3,  the  examination  of  the  available  data  does  not  establish  that  the  application  of  the 
Directive  led  to  any  change  in  the  geographical  composition  of  interest-bearing  savings. 
Although  there  appears  to  have  been  no  major  shifts  in  the  composition  of  savings  when 
viewed at macroeconomic level, both national administrations and operators have argued that 
improvements are needed either to deal with loopholes or to clarify procedures.  

A recent study carried out in 2004 on elasticity of savings in the form of cross-border deposits 
in banks 1 concludes that: 

(1)  A  1%  increase  in  the  interest  tax  burden  (defined  as  the  interest  rate  time  the  tax  rate) 
increases external deposits by about 2.4% (i.e. the capital flight is an additional 2.4%). 

(2)  The  sensitivity  of  external  depositing  to  the  tax  seems  to  be  dependent  on  the  level  of 
interest rates. With low interest rates, the tax burden becomes small in percentage of the asset 
up to a point where depositors may become insensitive. 

(3)  There  is  little  evidence  that  international  information  exchange  has  a  strong  impact  on 
bilateral depositing. 

It  should  however  be  noted  that  the  study  applies  to  international  deposits  that  probably 
represent a small share of total savings in interest-bearing instruments and which may also be 
amongst the most mobile instruments. The study also refers to data for 1983-1999, a period 
prior to the implementation of the Savings Directive. Hence, the relevance of the study for the 
present  context  is  subject  to  the  Lucas  Critique  that  the  sensitivity  may  have  decreased 
because of the existence of a new regulatory environment created by the adoption of the 2003 
Savings Directive. 

1 

Huizinga,  H.  and  Nicodème,  G.  (2004).  Are  International  Deposits  Tax-Driven,  Journal  of  Public 
Economics. 88(6): 1093-1118.  

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As  explained  in  section  4,  the  different  options  have  taken  into  account  the  international 
dimension of the 2003 Directive and in particular the need to prevent a possible relocation of 
savings to non-EU countries as a consequence of the strengthening of the measures inside the 
EU. Options 3 and 4 include the application of a look-through approach for entities and legal 
arrangements  established  in  non-EU  jurisdictions  as  long  as  they  do  not  apply  equivalent 
measures to those to be agreed at EU level in the field of taxation of savings. 

2.3.  Who is affected, in what ways, and to what extent? 

The three main actors concerned with the application of the provisions of the Directive 
are: market operators, competent authorities of Member States and individuals resident 
in  one  Member  State  that  obtain  payment  interests  from  paying  agents  in  another 
Member State. 

Market  operators  in  the  financial  services  sector  are  affected.  This  goes  particularly  for 
those  who  are  obliged  to  act  as  paying  agents,  i.e.,  who  are  the  last  link  in  the  chain  of 
payments  to  an  individual  beneficial  owner  and  therefore  are  obliged  to  report  interest 
payments or to levy a withholding tax under the 2003 Directive (or the related Agreements). 
Some  categories  of  market  operators  can  be  affected  even  when  they  do  not  act  as  paying 
agents. This is at present the case of UCITS that have to ensure that paying agents receive the 
information  on  the  origin  of  their  income  and  the  composition  of  their  assets  which  is 
necessary for correctly applying the provisions to interest payments. 

It is difficult to provide exact figures of market operators who at present apply the provisions 
of  the  Directive  in  one  way  or  other.  Concerning  the  trade  associations  represented  in  the 
Expert  group,  one  can  note  that  the  European  Banking  Federation  (EBF)  represents  the 
interests  of  over  5,000  European  banks,  large  and  small,  from  29  national  Banking 
Associations  (25  Member  States  plus  4  non-EU  Member  States),  whilst  the  European  Fund 
and Asset Management Association (EFAMA), through its 23 national member associations 
and  over  40  corporate  members,  represents  about  EUR  15  trillion  in  assets  under 
management,  of  which  EUR  7.5  trillion  is  managed  by  around  46,000  investment  funds 
(according to the figures provided by EFAMA in 2007).  

In order to make an assessment of the administrative cost incurred by paying agents for the 
application of the provisions of the 2003 Directive, the Commission services asked the market 
operators'  Associations  represented  in  the  Expert  Group  to  provide  information  on  costs 
incurred in connection to the implementation of the 2003 Directive. It has nevertheless proved 
to  be  difficult  for  these  Associations  to  get  comprehensive  figures  from  their  members  that 
can be considered as representative of the situation of all the paying agents established in all 
Member  States.  The  feedback  received  by  various  Associations  from  their  members  on 
estimates  of  specific  start-up  costs  and  annual  recurring  costs  incurred  by  them  was  not 
sufficient to make any statistically firm conclusions and to provide the Commission services 
with reliable answers. For information, the available figures on the costs incurred by paying 
agents while applying the provisions of the Directive since 2005 are presented below: 

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2.3.1.  Average  start-up  costs  for  the  first  application  of  the  national  measures  for 

implementing the Savings Directive2 

Table 2: Average start-up costs for the first application of the national measures for 
implementing the Savings Directive 

AVERAGE 
START-UP 
COSTS 

PER 
BUSINESS 
UNIT 
ACTING  AS 
PAYING 
AGENT3 

PER 
MEMBER 
STATE 

SOURCE 

PROFILE  OF 
INDIVIDUAL 
RESPONDEN
TS 

MEMBER 
STATES 
DETAILS  

2005 

EUR 2m 

-  

2005 

- 

Germany  

- EUR 193m 
for all credit 
institutions 
overhead 
inclusive; 

- EUR 123m 
overhead costs 
exclusive 

Large banks, 
retail and 
private banking 

Reporting MSs: 

- 2 big old MSs 

- 3 small old MSs 

- 1 small new MS

Credit 
institutions 

Reporting MS 

- Germany 

European 
Banking 
Federation 
(EBF), based 
on responses 
from 40 paying 
agents in 6 MS 

IW Consult 
GmbH, Study4 
"Costs of red 
tape within the 
credit services 
sector", 
December 2006

Recently5, the European Policy Forum presented its findings  on the  start-up costs of twelve 
paying  agents  from  nine  Member  States  (Belgium,  Cyprus,  the  Czech  Republic,  Hungary, 
Ireland, Italy, Austria, Poland, the United Kingdom), plus Guernsey and Switzerland.  

It  is  to  be  noted  that  the  data  obtained  by  the  European  Policy  Forum  differs  substantially 
from the data submitted in response to the Commission services' Quantitative Questionnaire. 
According to the responses received by the European Policy Forum, the implementation costs 
appear  to  be  much  lower.  Ten  respondents  placed  their  start-up  costs  below  EUR  500.000, 
which was the smallest amount provided for in the predefined responses. Two respondents – 
indicated  as  being  "large  banks,  renowned  for  their  private  wealth  management  businesses 

2 

3 
4 

5 

Based  on  data  provided  in  response  to  the  Quantitative  Questionnaire  (see  p.  1.2),  published  on  the 
Savings Directive Review website 
A bank may have several business units acting as paying agent under the Directive 
The  study  was  commissioned  by  the  associations  of  the  German  banking  sector.  The  method  of 
calculating the costs is based on the standard cost model proposed and adopted by the EU to measure 
administrative costs imposed by legislation 
The  findings  of  the  "Savings  Tax  Directive  review  –  looking  at  the  views  of  paying  agents  and  their 
compliance  costs"  were  presented  on  1  September  2008  at  a  Special  Roundtable  during  the  IFA 
Brussels Congress. This review has not been submitted officially to the Commission Services. 

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11 

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according to the source" - estimated the implementation costs to be between EUR 2.5m and 
10m, that is the third predefined response. It should be noted that these costs could be even 
lower  than  EUR  500.000  and  EUR  10m,  due  to  the  range  in  the  predefined  responses 
permitted. 

2.3.2. 

Average recurring costs per annum directly linked to the application of the national 
measures for implementing the Savings Directive 6 

Table  3:  Average  recurring  costs  per  annum  directly  linked  to  the  application  of  the 
national measures for implementing the Savings Directive 

AVERAGE 
RECURRING 
COSTS PER 
ANNUM  

APPROXIMATE 
PER BUSINESS 
UNIT ACTING AS 
PAYING AGENT 

2005 

EUR 100.000 

2006 

EUR 100.000 

SOURCE OF 
INFORMATION 

PROFILE OF 
INDIVIDUAL 
RESPONDENTS 

MEMBER 
STATES 
DETAILS  

EBF7, based on 
responses from 6 
paying agents in 2 
countries 

Large banks, retail 
and private 
banking 

EBF, based on 
responses from 36 
paying agents in 3 
countries 

Large banks, retail 
and private 
banking 

2007 

EUR 100.000 

EBF, based on 
responses from 16 
paying agents in 3 
countries 

Large banks, retail 
and private 
banking 

Reporting: 

- 1 big old MS 

- 1 small new 
MS 

Reporting: 

- 1 big old MS 

- 1 small old MS

- 1 small new 
MS 

Reporting: 

- 1 big old MS 

- 2 small old 
MSs 

The study of the European Policy Forum included as well a question on the average annual 
compliance costs arising from the implementation of the Directive. The responses it received 
also  vary  from  the  data  obtained  by  the  Commission  Services  so  far.  Thus,  11  respondents 
estimate these costs below EUR 1m, being the smallest amount provided for in the predefined 
responses  permitted  and  only  1  respondent  assesses  this  amount  between  EUR  1  –  2.5m. 
However,  it  should  be  noted  that  these  costs  could  even  be  lower,  due  to  the  range  in  the 
permitted predefined responses, especially the high level of the lowest amount (EUR 1m). 

6 

7 

Based  on  data  provided  in  response  to  the  Quantitative  Questionnaire  (see  p.1.2),  published  on  the 
Savings Tax Directive website 
Set up in 1960, the European Banking Federation represents the interests of over 5000 European banks, 
large and small, from 29 national Banking Associations, with assets of more than EUR 20 000 billion 
and over 2,3 million employees. 

EN 

12 

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In  response  to  the  Commission  Services'  Quantitative  Questionnaire,  The  European 
Association  of  Public  Banks  stated  that  it  did  not  receive  sufficient  feedback  allowing  it  to 
make  any  statistically  firm  conclusion.  The  European  Fund  and  Asset  Management 
Association  also  replied  that  the  data  required  is  not  available  to  it.  Furthermore,  the 
International  Swaps  and  Derivatives  Association  responded  that  the  information  required  is 
sensitive, not readily available to its members and would require significant effort on the part 
of  the  industry  to  answer.  The  Society  of  Trust  and  Estate  Practitioners  drew  attention  to 
potential  problems  with  incomplete  data  for  discretionary  trusts,  which  could  lead  to 
misleading conclusions. 

On  the  basis  of  the  above,  it  is  currently  not  possible  to  provide  any  additional  data  on  the 
start-up  and  compliance  costs  resulting  from  the  application  of  national  measures  for 
implementing the 2003 Directive. This fact makes it difficult to estimate the costs that would 
be incurred by current paying agents, and by possible new paying agents, in the case of any 
possible amendment to the Directive to extend its scope. 

Member States are affected given that the aim of the 2003 Directive is to enable them to levy 
the  taxes  that  rightfully  should  accrue  to  them  and  thus  to  safeguard  their  revenue  and  the 
financing of their budgets. They are also affected through the bilateral Agreements they have 
concluded with the ten dependent and associated territories in relation to the same measures. 

The  following  tables,  extracted  from  the  Commission  Staff  Working  Document  SEC(2008) 
2420,  present  the  available  figures  on  the  interest  payments  and  sales  proceeds  reported  by 
Member  States  using  information  exchange  and  the  tax  revenue  shared  by  Member  States 
applying a withholding tax during the second half of 2005 and 2006: 

Table 4: Interest payments and sales proceeds reported by countries using information exchange 

EU Member States 
Cyprus 
Czech Republic 
Denmark 
Estonia 
Finland 
France 
Germany 
Greece 
Hungary 
Ireland 
Italy 
Latvia 
Lithuania 
Malta 
Netherlands 
Poland 
Portugal 
Spain 
Sweden 
Slovenia 
Slovakia 
United Kingdom 
Total reported 

n.a. (not available) 

2nd half 2005 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
568.14 
660.73 
6.85 
n.a. 
258.87 
n.a. 
0.18 
n.a. 
1.02 
n.a. 
0.07 
n.a. 
n.a. 
n.a. 
n.a. 
1.87 
9,132.49 
10,630.22 

2006
n.a.
17.81
1.16
4.40
7.19
1512.54
1,392.06
23.11
n.a.
770.72
n.a.
0.65
0.09
2.10
795.69
0.61
0.56
n.a.
n.a.
1.35
4.76
n.a.
4,534.48
in million Euro

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13 

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If  the  very  conservative  assumption  is  made  that  the  United  Kingdom  collected  a  similar 
amount  for  the  fiscal  year  from  5  April  2006  to  30  June  2007  to  what  it  collected  for  the 
period  between  1  July  2005  and  4April  2006,  the  total  amount  for  2006/2007  would  be 
15,492.40  million  Euros.  It  is  important  to  highlight  that  the  total  amounts  do  not  include 
some  potentially  important  countries  such  as  Spain  or  Italy  for  which  data  have  still  to  be 
made officially available. 

Table 5: Tax revenue shared by countries with withholding tax regimes 
EU Member States 
Austria 
Belgium 
Luxembourg 
Total 

2nd half 2005 
9.48 
7.51 
35.90 
52.89 

2006
44.32
25.92
124.59
194.83
in million Euro

The figure of 194.83 million in the second table corresponds to 75% of the withholding tax 
collected  by  the  countries  applying  the  withholding  tax  system.  25%  of  the  total  amount 
collected  is  kept  by  the  Member  State  levying  the  withholding  tax.  Therefore,  the  total  tax 
withheld  in  2006  by  the  three  Member  States  that  apply  a  withholding  tax  during  the 
transitional  period  is  about  194.83  m  x  4/3,  i.e.  about  260  m.  Since  the  withholding  tax  in 
2006  was  15%,  the  total  withholding  tax  represents  a  total  interest  payment  of  about  260  x 
100 / 15 = 1,773 m EUR or about 1.8 Billion EUR. 

Finally,  individual  taxpayers  (beneficial  owners)  are  affected,  although  mostly  in  an 
indirect  way  as  far  as  the  'honest  taxpayers'  are  concerned,  as  the  measures  only  aim  at 
ensuring  that  they  fulfil  their  obligations  under  their  domestic  tax  rules  relating  to  savings 
income  These  honest  taxpayers  have  an  actual  interest  in  a  correct  functioning  of  the 
Directive, which can limit tax evasion and create the conditions for a balanced distribution of 
the tax burden.  

However,  there  are  certain  rules  which  more  directly  affect  individual  taxpayers  when  it 
comes  to  the  procedures  for  avoiding  the  levying  of  withholding  taxes:  the  2003  Directive 
provides  for  two  possibilities  in  this  respect,  the  so  called  voluntary  disclosure  and  the 
possibility  of  providing  a  certificate  issued  the  Member  State  of  residence.  Two  of  the 
Member  States  transitionally  levying  withholding  tax  have  only  provided  for  the  latter 
procedure  in  their  implementing  legislation.  This  means  that  a  beneficial  owner  wanting  to 
avoid the withholding tax cannot simply authorise the paying agent to report the income but is 
obliged  to  get  a  specific  certificate  from  the  tax  administration  of  his/her  Member  State  of 
residence  and  provide  that  certificate  to  the  paying  agent.  If  the  beneficial  owner  has 
difficulties in obtaining this certificate, the withholding tax is levied and can only be credited 
or  refunded  to  him/her  by  the  Member  State  where  he/she  is  actually  resident  for  tax 
purposes. With this certificate procedure, there can be situations where an individual who isn't 
actually resident for tax purposes in the EU could bear the withholding tax. It follows that this 
procedure  is  not  compatible  with  even  limited  measures  aimed  at  preventing  a  misuse  of 
intermediate structures located outside the EU.  

According  to  Member  States,  the  number  of  beneficial  owners  resident  in  another  Member 
State  for  whom  their  paying  agents  reported  interest  income  in  2007  was  2,051,127.  This 

EN 

14 

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figure  could  include  the  same  beneficial  owner  counted  a  number  of  times  for  different 
interest payments, in the absence of a more extensive use of the Tax Identification Number to 
identify the beneficial owner – See below the options 2, 3 and 4.  

2.4. 

How would the problem evolve, all things being equal? (N.B. Scenario(s) should 
take into account actions already taken or planned  by  the EU, Member  States 
and other actors). 

Any delay in finding an agreement between Member States (and, to the extent necessary, with 
non-EU  territories  and  countries),  on  solutions  for  ensuring  fairer  and  more  consistent 
coverage  of  the  savings  taxation  measures,  could  result  in  increased  market  distortions 
between comparable products and vehicles. 

In this context, it is also worth mentioning that domestic tax systems have evolved over the 
last few years to assimilate the treatment of income from some types of innovative financial 
products to interest from debt claims. 

For the three Member States entitled to the transitional regime (as well as for those non-EU 
territories and countries applying a withholding tax under the savings Agreements) the time 
constraint is of particular importance since the risk of distortion between comparable products 
will increase as the rate of the withholding tax, which was set at 15% for interest payments 
made  until  end  June  2008,  and  which  increased  to  20%  from  that  date  on,  will  increase  to 
35% on interest payments made on or after 1 July 2011. 

2.5. 

Does  the  EU  have  the  right  to  act  –  Treaty  base,  'necessity  test'  (subsidiarity) 
and fundamental rights limitation? 

The  evaluation  of  the  2003  Directive  under  the  "'necessity  test"  and  "fundamental  rights' 
limitation"  remains  valid  for  the  proposed  amendments.  In  similar  terms,  the  principle  of 
proportionality is also very relevant for the evaluation of the Directive in view of any possible 
amendments to its provisions. In compliance with this principle, any possible action to amend 
the  Directive  and  to  extend  its  scope  has  to  be  limited  to  what  is  necessary  to  achieve  the 
objectives set in Section 3. 

The 2003 Directive is based on Article 94 of the EC Treaty and covers cross-border savings 
income and ensures a common approach for the reporting and, transitionally, for the levying 
of withholding tax, on such income. Such a common approach is particularly important since 
the measures rely on the paying agents (i.e. on market operators) for their application, and this 
would  not  be  ensured  through  action  at  Member  State  level,  which  would  also  be  less 
transparent.  

The  performance  of  Member  States'  tax  systems  could  be  significantly  improved  by  more 
effective co-operation between Member States, and this could in turn help to keep economic 
activity  and  'mobile'  assets  in  the  European  Union,  while  avoiding  the  risk  of  further 
increasing the tax burden on less mobile bases such as labour. 

The Community is a signatory to the Agreements with the five European non-EU countries on 
equivalent  measures  to  those  of  the  2003  Directive.  Furthermore,  all  Member  States  have 
concluded bilateral Agreements with the ten dependent and associated territories providing for 
the same measures as those of this Directive.  

EN 

15 

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It  should  also  be  mentioned  that  pursuant  to  Council  Conclusions  of  23  October  2006,  the 
Commission  has  been  asked  to  conduct  exploratory  talks  with  other  important  financial 
centres  (Hong  Kong,  Singapore  and  Macao)  with  an  aim  to  further  extend  the  geographical 
scope of the savings taxation measures.  

Consideration has been given to aligning the forthcoming proposal to strengthen the general 
framework  of  administrative  cooperation  in  the  area  of  direct  taxation  provided  for  by 
Directive 77/799/EEC (as amended) on the positions taken in relation to the amendments to 
the 2003 Savings Directive. – See 4.1, option 3 and option 4. 

3. 

SECTION 3: OBJECTIVES 

3.1.  What are the general policy objectives? 

The  proposal  aims  at  strengthening  an  already  existing  mechanism  aimed  at  ensuring  the 
possibility  of  domestic  taxation  of  cross-border  savings  income  in  the  Member  State  where 
the  beneficial  owner  is  resident  in  accordance  with  the  domestic  tax  rules  of  that  Member 
State. 

3.2.  What are the more specific/operational objectives? 

The  more  specific  objective  of  the  proposal  is  to  close  loopholes  in  the  existing  legislation 
thus  ensuring  a  level  playing  field  by  providing  for  consistent  treatment  of  comparable 
situations in line with the principles of the Internal Market and  of  fair  competition  between 
comparable financial products and structures.  

At the same time, the proposal provides the paying agents with tools to perform their tasks in 
a  less  burdensome  manner;  it  thus  seeks  to  reduce  the  scope  (or  need)  for  subjective 
judgements,  thereby  enhancing  legal  certainty,  something  which  the  market  operators  have 
been pressing for. 

3.3. 

Are  these  objectives  consistent  with  other  EU  policies  and,  if  applicable, 
horizontal  objectives,  such  as  the  Lisbon  and  Sustainable  Development 
strategies or respect for fundamental rights? 

The  proposed  amendments  are  coherent  with  the  renewed  Lisbon  Strategy  and  address  the 
need  to  preserve  the  competitiveness  of  the  EU  financial  operators  in  the  global  market. 
Particular attention has been devoted to limiting any additional administrative burden on EU 
market operators and, where possible, to reduce the burden already put by the 2003 Directive 
on some of them.  

4. 

SECTION 4: POLICY OPTIONS 

4.1.  What  are  the  possible  options  for  meeting  the  objectives  and  tackling  the 

problem? Description of the different options 

When  assessing  the  various  options,  it  should  be  kept  in  mind  that  the  2003  Directive 
essentially relies on paying agents for the execution of its provisions. Therefore, due account 
has to be taken of the Lisbon Strategy and the better regulation initiative, which involves, for 
example, reducing administrative burdens on and unnecessary costs for businesses. Member 
to  explore  solutions  whereby  any  additional 
States  should 

therefore  be  prepared 

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16 

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administrative  burden  for  making  the  provisions  of  the  Directive  more  effective  would  be 
placed as far as possible on the tax administrations, which would benefit from an increase in 
tax  revenue,  or  on  market  operators  that  are  currently  less  involved,  rather  than  on  those 
market  operators  (such  as  banks  and  asset  managers)  that  already  make  an  important 
contribution to the functioning of the Directive. Therefore, and taking into account possible 
additional costs for some of the operators and/or competent authorities of Member States, the 
principle  of  proportionality  has  to  be  particularly  considered  when  assessing  the  different 
options. 

Another constraint is the relatively limited territorial coverage of the 2003 Directive as well as 
of the Agreements providing for the same or equivalent measures.  

The Commission continues to pursue the objective of promoting the application, by important 
non-EU financial centres, of measures equivalent to those applied by Member States and third 
parties participating in the savings taxation mechanism. However, as long as the geographical 
coverage of the savings taxation measures remains limited, it is also useful to consider, while 
having  due  regard  to  the  free  movement  of  capital  laid  down  in  the  EC  Treaty,  whether 
measures  should  be  taken  aimed  at  tackling  the  attempts  of  EU  resident  individuals  to 
circumvent  the  2003  Directive  by  channelling  interest  payments,  made  in  the  EU,  through 
“shell” entities or arrangements located outside the territory of the EU and of the jurisdictions 
cooperating with the EU.  

The  consultations  with  business  and  national  administrations  have  mainly  focused  on  the 
analysis  of  three  essential  elements  of  the  Directive  which  have  a  decisive  influence  on  its 
effectiveness,  irrespective  of  the  system  under  which  the  Directive  is  applied:  (i)  the 
definition of the beneficial owner; (ii) the definition of the paying agent and its obligations; 
and (iii) the definition of 'savings income'., and in particular that of an 'interest payment'.  

A balanced solution thus needs to take into account all the three essential elements referred to 
above, namely “beneficial owner”, “paying agent” and “savings income in the form of interest 
payments”, as well as the administrative burden on paying agents and on Member States, the 
need  to  safeguard  Member  States'  tax  revenue  and  the  competitiveness  of  the  EU  financial 
sector. 

It should be recalled that the original choice to exclude all innovative financial products from 
the scope of the Directive (ECOFIN Council conclusions of May 1999 and November 2000) 
was  accompanied  by  an  express  statement  that  this  issue  should  be  re-examined  on  the 
occasion  of  the  first  review  of  the  Directive,  the  aim  being  to  find  a  definition  covering  all 
securities that are equivalent to debt claims so as to ensure the effectiveness of the Directive 
in a changing environment and to prevent market distortions. 

In  addition  to  the  above  considerations  there  is  the  need  for  statistics  in  order  to  assess  the 
functioning of the Directive. 

Basically  four  main  options  have  been  considered,  option  1  being  that  of  no  action.  Unlike 
option  2,  which  consists  of  closing  unintentional  loopholes  and  better  coverage  of  savings 
products in line with the unanimous Council conclusions of 27 November 2000, options 3 and 
4  would  mean  a  clear  extension  of  the  scope  of  the  2003  Directive.  Under  options  3  and  4 
there are in reality a number of choices. The possibility of including a limited number of legal 
persons could be  discussed in  connection with option 3  (e.g transparent entities and entities 

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17 

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established  in  third  jurisdictions  that  are  not  subject  to  taxation).  For  option  4,  various 
combinations of 'savings products' could be considered.  

Option 1 – No action  

This  option  means  that  no  amendments  would  be  introduced  into  the  2003  Directive.  The 
scope would remain more limited than was intended according to the Council conclusions of 
27 November 2000. Nor would the unintentional loopholes be closed, and there would be no 
reduction in the current administrative burden. 

Innovative  financial  products  [including  structured  securities]  were  excluded  from  the 
scope of the 2003 Directive, and they would remain so. 

Furthermore, in spite of certain evidence of market distortions, due to inconsistent treatment 
of similar savings products (for instance incorporated and non-incorporated non-UCITS), no 
action would be taken. 

It would be worth mentioning that the European Banking Federation (EBF), which represents 
most of the paying agents involved in the application of the Directive across the EU, noted in 
its comments of 3 July 2008 that its members "share the opinion that the Directive remains 
unclear as for (i) the definition of 'interest payment' and 'paying agent', (ii) the definition of 
'residual  entities'  and  (iii)  the  formulae  that  may  be  used  in  different  member  states  to 
determine whether a fund or a particular fund event falls under the Directive". The EBF also 
emphasised the importance of a level playing field covering the transactions which fall under 
the scope of the Directive. 

Option 1 would also not ensure that the problem of lack of statistics from Member States is 
solved. Statistics would continue to be provided on an almost voluntary basis as provided by 
the Council conclusions of 26 May 2008. 

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 Directive 

The Directive builds on the consensus reached at the Santa Maria da Feira European Council 
of 19 and 20 June 2000 and the subsequent Ecofin Council meetings of 26 and 27 November, 
13 December 2001 and 21 January 2003. 

The  27  November  2000  Council  meeting  conclusions  outlined  the  key  principles  of  the 
Directive as adopted in 2003. According to these conclusions the following types of income 
should be exclusively considered within the scope for the purposes of the Directive: 

a) 

Paid  or  account-registered  interest  relating  to  debt  claim  of  every  kind,  whether  or 
not  secured  by  mortgage  or  whether  or  not  carrying  a  right  to  participate  in  the 
debtor's  profits,  and  in  particular  income  from  Government  securities  and  income 

EN 

18 

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from  bonds  or  debentures,  including  premiums  and  prizes  attaching  to  such 
securities, bonds or debentures. Penalty charges for late payments are not considered 
as interest; 

Accrued interest relating to products referred in a); 

Capitalised interest relating to capitalisation products; 

Income  distributed  by  distribution  coordinated  UCI  invested  exclusively  in  rate 
products; 

Income distributed by mixed distribution coordinated UCI; 

Income relating to investments in coordinated capitalisation UCI more than 40% of 
the assets of which are invested in rate products, this threshold being lowered at the 
end of the transitional period to a level to be decided at a later date; 

Interest  paid  directly  to  or  credited  to  an  account  held  by  entities  such  as 
uncoordinated  UCI 
comparable 
undertakings. 

("non-UCITS"),  partnerships, 

trusts 

and 

b) 

c) 

d) 

e) 

f) 

g) 

The main text of the above mentioned 2000 Council conclusions explicitly indicates that the 
definition  of  paying  agent  must  also  cover  "interest  payments  relating  to  the  direct 
management  of  a  portfolio  or  indirect  management  of  a  portfolio,  whether  by  investment 
funds  or  similar  investment  structures  (partnerships,  trusts,  investment  clubs,  etc.)". 
According to the following more detailed description made by the conclusion, this objective 
should be ensured through the application to some "entities" without legal personality and not 
subject to taxation of the special rule of paying agent on receipt. However, neither the Council 
conclusions  nor  the  2003  Directive  seem  to  reflect  an  accurate  consideration  of  the  legal 
nature of trusts and of some partnerships, which are not entities but legal arrangements  and 
cannot therefore be covered by the special rule of Article 4.2 of the 2003 Directive if the legal 
text only refers to entities and not also to legal arrangements.  

A  similar  inconsistency  arose  for  investment  funds  established  in  the  EU.  The  lack  of  an 
explicit  reference  to  non-UCITS  with  legal  personality  (like  SICAVs)  gives  the  result  that 
interest income channelled through them is kept out from the scope whilst non-incorporated 
non-UCITS with  the same composition of assets are always covered by  the  2003  Directive, 
either  as  paying  agents  on  receipt,  or  by  having  their  income  taken  into  consideration  as 
income from authorised UCITS. 

Option 2 basically means using the 27 November 2000 Council conclusions on what should 
have  been  the  content  of  the  then  future  Directive  as  a  benchmark,  seeking  to  close 
unintentional loopholes and extending the scope only to include savings products which are 
equivalent  to  debt-claim  products  and  which  it  was  the  intention  to  cover  according  to  the 
main principles stated in the unanimous Council conclusions. This would mean amending the 
2003  Directive  to  cover  all  the  EU  collective  investment  vehicles  (both  UCITS  and  non-
UCITS) irrespective of their legal form, so avoiding the current inconsistent treatment of non-
UCITS (incorporated vs. non-incorporated). 

Furthermore, option 2 consists of extending the rule of paying agent upon receipt of Article 
4.2  of  the  Directive  to  the  case  of  interest  payments  made  not  only  to  entities  but  also  to 
arrangements (such as trusts) as it was in principle the Council's intention in 2000. 

EN 

19 

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The  amending  proposal  is  also  the  occasion  to  take  into  account  some  suggestions  from 
market operators like EBF (notably the "home country rule" for treating investment funds or a 
clearer  exclusion  of  those  banks  which  passively  receive  a  payment  on  behalf  of  their 
customers from the paying agent obligations). 

On the other hand, in the same way as for option 1, innovative financial instruments would 
not be included, nor would any insurance products, regardless of whether they cover virtually 
no risk and are of such a character that they could be assimilated to debt claims, or to UCITS 
and non-UCITS. 

In  its  comments  of  1  October  2007  (relating  to  a  Commission  working  document)  and  10 
September  2008,  the  European  Fund  and  Asset  Management  Association,  EFAMA,  stated 
that "if the scope of the Directive is to be extended to cover non-UCITS, it must be ensured 
that similar competing products targeted to retail investors, in particular structured bonds and 
unit-linked  insurance  products  are  included  as  well".  It  pointed  to  the  Ecofin  Council 
conclusions  of  8  May  2007,  inviting  the  Commission  to  review  the  consistency  of  EU 
legislation regarding the different types of retail investment products, so as to ensure a level 
playing field, and it went on to say that the Commission should have this in mind also when 
regulating tax issues. 

The  number  of  new  actors  that  would  be  concerned  by  option  2  is  difficult  to  estimate.  In 
principle, the proposed amendments would only affect incorporated non-UCITS and trusts or 
similar arrangements established in a Member State.  

Option 2 

Action 

to 

better 
Amendments 
coverage  according  to  the  Council 
conclusions of 27.11.2000 

ensure 

 Extension to all collective investments vehicles 

Extension  of  paying  agent  on  receipt  rule  to 
arrangements (trusts) 

Limiting the administrative burden for 
paying  agents  in  the  respect  of  the 
same conclusions 

"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  loopholes  and  extend  the  coverage  to  certain  other  products  which 
can  be  assimilated  to  debt  claims  or  to  interest-bearing  instruments,  notably  certain 
insurance products with virtually no risk protection 

Option 3 would mainly involve the solutions below. The opinion of market operators and of 
the competent authorities of Member States has been considered before presenting this option. 
The  annex  to  this  document  provides  a  table  with  the  positions  of  market  operators  and 
Member States in relation to the proposed amendments as discussed during the consultation 
period  described  in  1.2.  As  mentioned  above  (2.5)  consideration  has  been  given  to  aligning 
the forthcoming proposal to strengthen the general framework of administrative cooperation 
in the area of direct taxation under Directive 77/799/EEC (as amended) on the positions taken 
in relation to the amendments to the 2003 Savings Directive: 

EN 

20 

   EN 

 
 
 
 
– 

extending the scope of the 2003 Directive to 

– 

– 

include securities which are equivalent to debt claims from the point of view of 
the investor, because virtually all of the capital 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; 

include  those  life  insurance  contracts  providing  for  very  low  biometric  risk 
coverage  and  investing  the  capital  in  debt-claims,  units/shares  in  investments 
funds or equivalent securities. 

Extending  the  scope  to  other  savings  products  that  are  perceived  by  investors  as 
comparable to debt-claims because of their low risk and their capital protection was 
discussed  with  market  associations  in  order  to  avoid  administrative  burdens  on 
paying  agents.  A  reference  to  the  "substance  over  form"  principle  for  identifying 
these products was first suggested by the Commission as a more flexible approach to 
developments in the financial markets. However, economic operators objected to an 
open reference in the Directive to this principle arguing that it is not very feasible in 
practice. Other alternatives, such as lists of products to be included under the scope 
of the Directive and to be subject to review under a comitology procedure, were also 
dismissed because any procedure to update the list would be time consuming and not 
effective.  Therefore,  leaving  aside  the  above  solutions,  option  3  would  involve 
extending the scope to specific products that meet certain objective criteria, easy to 
be checked by paying agents that have not participated in the creation of the product.  

– 

clarifying  the  situations  where  the  'paying  agent  on  receipt'  mechanism  applies  (cf. 
the quote from EBF above): besides trusts as described in option 2, this rule would 
also extend to transparent entities provided with legal personality. 

These  transparent  entities  include  foundations  without  charitable  purposes.  An 
example  of  the  situations  that  would  be  covered  is  offered  by  Liechtenstein 
foundations.  These  legal  persons  are  in  principle  covered  by  the  agreement  on 
savings signed with Liechtenstein as paying agents at the moment when they make 
an interest payment for the benefit of an individual resident in the EU. However, in 
practice, payments made by these foundations can very rarely be qualified as interest 
payments.  The  most  effective  way  to  ensure  that  interest  income  obtained  through 
them by an individual is fully caught is obliging the foundation to act as a "paying 
agent on receipt". 

In order to facilitate the tasks of economic operators, a positive list with the entities 
and arrangements to be considered as paying agents on receipt would be included in 
the  annexes  to  the  Directive  as  suggested  by  market  operators'  associations 
represented in the Expert Group on Savings. 

– 

introducing a 'look-through approach' in relation to selected jurisdictions outside the 
EU  in  order  to  ensure  that  the  savings  taxation  measures  cannot  be  avoided  or 
circumvented  by  channelling  payments  through  entities  and  legal  arrangements  in 
those jurisdictions which are not effectively taxed there.  

The  'look-through  approach'  consists  of  asking  paying  agents  established  in  an  EU 
Member  State  who  are  subject  to  the  application  of  anti-money  laundering 

EN 

21 

   EN 

 
obligations, to use the information already available to them within this framework, 
insofar as it relates to the actual beneficial owner(s) of a payment made to specific 
kinds  of  legal  persons  or  arrangements  established  in  selected  jurisdictions  outside 
the  EU,  where  appropriate  and  effective  taxation  of  interest  income  paid  to  these 
kinds of legal persons or arrangements is not ensured. An indiscriminate extension of 
this  approach,  to  all  entities  and  legal  arrangements  in  the  EU,  even  if  it  refers  to 
information  already  available  to  the  paying  agent,  does  not  seem  to  an  appropriate 
and  proportionate  solution  as  market  operators'  associations  have  pointed  out.  A 
selective approach concerning only payments to some non-EU legal structures could 
be easier to implement as it could be automatically applied through IT resources and 
would  not  raise  the  risk  of  duplicating  paying  agent  responsibilities  on  the  same 
interest payment within the EU. The paying agent would not need any cooperation of 
the selected jurisdictions outside the EU, as it would use the results of the Customer 
Due  Diligence  which  it  is  already  obliged  to  perform  under  the  Third  Anti-Money 
Laundering Directive (also applied in Liechtenstein as part of the EEA).  

As in the case of paying agents on receipt, a positive list with categories of entities 
and  arrangements,  resident  in  non-EU  jurisdictions  which  do  not  ensure  their 
appropriate  and  effective  taxation,  would  be  included  in  the  Annexes  to  reduce  the 
uncertainties and limit the administrative burden. 

Updating  of  the  lists  established  for  applying  this  option  (paying  agents  on  receipt  and 
untaxed entities/ arrangements in third jurisdictions) would require regular amendments of the 
directive  or,  as  a  more  practical  alternative  and  as  proposed  under  this  option,  the  use  of  a 
committee with limited delegated powers. 

Option 3 would include some further minor changes to facilitate the operation of the Directive 
for  beneficial  owners  (elimination  of  the  certificate  procedure  to  avoid  the  transitional 
withholding tax in 3 Member States) and to obtain a more accurate and updated establishment 
of  their  residence  as  well  as  of  their  tax  identification  number  (if  any)  on  the  basis  of  the 
information  already  available  to  the  paying  agent.  In  order  to  solve  the  problem  of  lack  of 
information, MS would be required to submit to the Commission certain statistics on a yearly 
basis. 

In  addition  to  the  new  actors  under  option  2,  the  proposed  amendments  under  this  option 
would  involve  some  life  insurance  providers.  However,  taking  into  account  the  specifically 
targeted life insurance contracts and the fact that the paying agent in the Directive is the last 
payer in the chain of payments (so it could be a bank already involved in the operation of the 
Directive  rather  than  the  life  insurance  company),  the  number  of  new  actors  concerned  as 
paying agents should be rather limited.  

EN 

22 

   EN 

 
Option 3 

Action 

Amendments to ensure extension of 
the current scope, to close loopholes 
and  include  some  further  savings 
products 

Extension  to  all  collective  investments,  securities 
equivalent  to  debt  claims  and  life  insurance  products 
with low biometric risk 

Extension  of  the  paying  agent  on  receipt  rule  to 
arrangements  (trusts)  and  certain  transparent  entities 
with legal personality (such as foundations) 

Look  through  approach  for  payments  to  certain 
structures established in certain third jurisdictions 

Other amendments: making more use of the available 
information  for  establishing  the  residence  of  the 
beneficial  owner  and  eliminating 
the  certificate 
procedure 

Option 4 – Amendments to enlarge the scope of the Directive to include all legal persons 
and  further  savings  products  such  as,  notably  dividend  payments,  any  financial  capital 
gains and/or insurance products. 

At  the  Ecofin  Council  in  March  2008,  a  number  of  Member  States  expressed  their  wish  to 
extend  the  scope  of  the  Savings  Directive  beyond the Council conclusions of  27 November 
2000  and  to  include  payments  to  legal  persons  and  all  other  types  of  investment  income 
(dividends, capital gains,  “out  payments” from genuine life insurance contracts and pension 
schemes etc.).  

There are certain constraints to be considered as far as an extension of the scope to all savings 
products is concerned.  

As  mentioned,  there  are,  transitionally,  two  different  mechanisms  in  place  under  the 
Directive, automatic information exchange and the levying of a withholding tax. Withholding 
tax  is  not  a  suitable  mechanism  unless  the  net  income  to  be  taxed  is  known.  While  this  is 
usually  the  case  for  interest  income  in  the  hands  of  individuals,  it  is  but  rarely  so  for  some 
other  forms  of  income,  e.g.,  capital  gains.  Also,  the  rules  on  capital  gains  taxation  vary 
considerably  between  Member  States,  as  well  as  between  different  types  of  capital  gains. 
Against this background, the levying of a withholding tax on the full sales proceeds would be 
disproportionate.  Thus  information  exchange  would  appear,  prima  facie,  to  be  the  only 
mechanism which would be suitable for such savings products. 

Under option 4 the question therefore arises whether it would be appropriate to include all of 
the  above  savings  products  or  only  some  (or  one)  of  them  within  the  scope  of  the  savings 
taxation measures; one dimension of the question is to what extent the 2003 Directive is the 
appropriate  instrument  or  a  strengthening  of  the  cooperation  within  the  framework  of 
Directive 77/799/EEC on mutual assistance would be a more appropriate instrument in order 
to prevent the unlawful non-reporting of these types of income by taxpayers in their state of 
residence.  

Enlarging  the  scope  to  include  dividends,  especially  if  this  includes  dividends  to  corporate 
beneficial owners, as suggested by at least one Member State, could lead to multiple reporting 

EN 

23 

   EN 

 
 
and  to  multiple  layers  of  withholding  tax.  In  particular,  where  there  is  an  obvious  risk  of 
multiple  layers  of  withholding  tax,  the  general  framework  for  administrative  cooperation 
(Directive  77/799/EEC  as  amended),  which  builds  solely  on  information  exchange,  would 
seem more appropriate. 

Option 4 

Action 

the  widest  possible 
Achieving 
coverage  of  payments  of  savings 
income without any selectivity 

 Extension  of  the  scope  to  payments  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) 

4.2.  Which options have been discarded at an early stage and why? 

For political reasons, the option of repealing the 2003 Directive has never been on the table. It 
took  around  ten  years  of  discussions  and  negotiations  to  get  the  measures  into  place.  They 
have only been in operation for three years. And this is the first review process, with another 
one due in three years' time. Furthermore, the Community and its Member States have entered 
into  international  Agreements  on  the  same,  or  equivalent,  measures.  Currently,  42 
jurisdictions  are  thus  covered  by  the  savings  measures,  and  exploratory  talks  on  such 
measures are ongoing with yet other jurisdictions, and negotiations are about to be launched 
with Norway. 

In  addition,  it  should  be  mentioned  that  the  economic  evaluation  carried  out  (see  SEC 
(2008)2420) shows a small shift in deposits of non-bank depositors from countries within the 
scope of the 2003 Directive towards third countries but it is impossible to link it directly to 
the  implementation  of  the  Directive  as  this  development  gradually  took  place  in  the  years 
before the 2003 Directive came into force. 

5. 

SECTION 5: ANALYSIS OF IMPACTS 

5.1. 

Impacts of the different options 

Option 1 – No action 

Impacts from the point of view of: 

a) 

Market operators (paying agents): Even if in principle the no action option would 
avoid  any  new  administrative  costs  for  paying  agents,  the  absence  of  clarity  in  the 
application of some of the current provisions of the Directive is also a problem for 
paying agents such as the lack of an explicit reference to a home country rule in the 
case  of  payments  obtained  through  UCITS  or  the  application  of  the  special  rule  of 
paying agent on receipt of Article 4.2 of the Directive. 

Furthermore,  some  of  the  existing  loopholes  in  the  Directive  provide  beneficial 
owners with incentives to invest in some products or through certain structures that 
have  nothing  to  do  with  their  financial  return.  By  this,  investors  undermine  fair 

EN 

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competition in the industry at EU level and with third countries which leads market 
distortions.  As  explained  above  the  EBF  has  highlighted  these  problems  to  the 
Commission in the context of the Expert Group on savings taxation. (See description 
of option 1 in section 5.1)  

b) 

c) 

Competent authorities (Member States): Current loopholes in the Directive result 
in  budgetary  losses  that  exceed  any  necessary  administrative  costs  that  could  be 
involved by amending the Directive. Member States have underlined that according 
to their experience the lack of compliance by their taxpayers when it comes to cross-
border savings income leads to a loss of tax revenue which may be substantial.  

Individuals  (beneficial  owners):  Indirectly,  the  continued  existence  of  some 
loopholes in the Directive would have a negative impact in terms of fiscal pressure 
on  diligent  taxpayers  and  on  taxpayers  whose  main  income  is  subject  to  closer 
controls (i.e., labour income).  

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 Directive  

Impacts from the point of view of: 

a) 

b) 

c) 

Market operators (paying agents): The introduction of the amendments would not 
involve onerous administrative costs for paying agents already covered by the 2003 
Directive.  Paying  agent  obligations  would  be  imposed  on  some  further  market 
operators who would then incur administrative costs. However, their number would 
be relatively limited. The extension of the provisions of the Directive to incorporated 
non-UCITS  would  have  a  positive  impact  on  competition  in  the  investments  funds 
industry,  but  would  leave  a  competitive  advantage  to  other  products  not  covered 
under the Directive.  

Competent  authorities  (Member  States):  The  introduction  of  the  proposed 
amendments would not be exceptionally onerous for the competent authorities. Any 
necessary costs should normally be outweighed by the positive impact on the budget 
because the coverage would be more complete.  

Individuals  (beneficial  owners):  Indirectly,  reduction  in  the  negative  impact  on 
diligent taxpayers and on taxpayers whose main income is subject to closer controls 
by increasing tax revenues from products and arrangements to be covered under the 
Directive  (more  horizontal  equity).  In  accordance  with  the  principle  of  horizontal 
equity,  taxpayers  who  have  the  same  level  of  similar  income  should  pay  the  same 
amount of taxes. 

Option  3  –  The  same  amendments  as  those  under  option  2,  in  combination  with 
amendments  to  close  loopholes  and  extend  the  coverage  to  certain  other  products  which 
can  be  assimilated  to  debt  claims  or  to  interest-bearing  instruments,  notably  certain 
insurance products with virtually no risk protection  

Impacts from the point of view of: 

a) 

Market  operators  (paying  agents):  Current  paying  agents  would  have  to  incur 
administrative  costs  to  adapt  their  systems  to  the  new  scope  of  the  Directive 

EN 

25 

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(structured products and look-through approach). Paying agent on receipt obligations 
would be given to transparent entities with legal personality. Furthermore, since new 
products  would  fall  within  the  scope  (such  as  life  insurance  contracts  without 
significant biometric risk coverage) new paying agents would have to introduce rules 
to apply, or to make possible the application of, the provisions of the Directive.  

b) 

Competent authorities (Member States): Similarly to option 2, the introduction of 
the  proposed  amendments  would  involve  administrative  costs,  but,  again,  these 
should normally be compensated through a more effective collection of tax revenue 
due.  

The amendments regarding payments to legal entities and arrangements established 
outside  the  EU  would  better  align  the  requirements  of  identification  of  beneficial 
owners  under  the  2003  Directive  with  those  foreseen  for  anti  money  laundering 
purposes.  Through  this,  third  countries  that  act  as  shelters  for  EU  residents  would 
also be caught under the Directive.  

The  amendments  regarding  abolition  of  one  of  the  two  procedures  to  allow  non-
payment of withholding tax, namely exemption on the basis of a certificate submitted 
by  the  beneficial  owner,  would  result  in  an  additional  burden  for  the  tax 
administration of the State of the paying agent by the compulsory application of the 
voluntary  disclosure  and  automatic  information  exchange  procedure.  However  it 
would be more than balanced by the reduced burden on the State of residence of the 
beneficial owner as well as on the beneficial owner himself.  

c) 

Individuals  (beneficial  owners):  Indirectly,  as  the  result  of  closing  the  identified 
loopholes, positive effect on horizontal equity between capital income and other type 
of  income  less  movable  and  therefore,  subject  to  closer  supervision  by  the  tax 
authorities.  

Positive  effect  on  the  beneficial  owners  concerned  of  the  elimination  of  the 
certificate procedure. 

This  option  should  ensure  a  fairer  treatment  between  comparable  products  of  the  "interest 
family",  thus  reducing  existing  and  potential  distortions,  and  should  improve  the  breadth  of 
information available to MS administrations, thus improving their possibilities to collect tax. 
Costs for operators and administrations should be reduced where clarifications are being made 
to procedures.  

Option 4 – Amendments to enlarge the scope of the Directive to include all legal persons 
and  further  savings  products  such  as,  notably  dividend  payments,  any  financial  capital 
gains and/or insurance products 

Impacts from the point of view of: 

a) 

Market  operators  (paying  agents):  This  option  would  clearly  involve  more 
administrative costs for paying agents at the level of IT resources. The same interest 
payment  could  be  reported  many  times.  Some  market  operators  in  exchange  of 
information  countries  expressed  nevertheless  sympathy  for  solutions  which  would 
not oblige them to make any selection of the information to be treated. 

EN 

26 

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b) 

c) 

Competent  authorities  (Member  States):  The  introduction  of  the  proposed 
amendments could be  excessively onerous for the competent authorities because of 
possible  redundant  information  received  at  different  stages  on  savings  income. 
Furthermore,  Member  States  that  do  not  already  have  in  place  a  system  to  collect 
information on payments of income that can be classified as dividends, capital gains 
and/or insurance products, will have more costs for the application of the new rules.  

Individuals  (beneficial  owners):  Indirectly,  more  enhanced  positive  effect  than  in 
option 3 on horizontal equity, if Member States are able to correctly treat the mass of 
information received. 

As  explained  in  the  description  of  the  option,  the  main  pitfall  is  the  possibility  for 
redundancies  of  information  and  multiple  layers  of  withholding  taxes  (which  would  almost 
certainly impose the abandonment of the transitional provisions at least on the new categories 
of income and payees covered) and the potentially disproportionate administrative burden this 
could impose.  

Other effects  

As in option 2 and 3, the amendments would have an impact on the agreements signed with 
non-EU  jurisdictions  for  the  application  of  the  same  or  equivalent  measures.  (See  "other 
considerations"  below).  Unlike  in  options  2  and  3,  where  the  scope  and  functioning  of  the 
Directive  is  not  substantially  modified,  in  the  case  of  option  4  any  negotiation  with  third 
jurisdictions for a review of the Agreements, notably those agreements based on the levying 
of a withholding tax, would be significantly difficult and delicate.  

EN 

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5.2. 

Table 6: Impact table 

Options 

Affected 
parties 

Effect
Direct: 
D 

Indirect
: I 

Impacts 
Positive: + 
Strongly positive: ++ 
Negative: - 
Strongly negative: -- 
Neutral/marginal: ≈ 

Impact 
Timing 
One-off 
Short-term 
Medium-term 
Long-term 
On-going 

Impact 
Nature 

Dynamic 
Static 

Impact 
Likelihood
Certain 
High 
Medium 
Low 

Market 
operators 

D 

No action 

Competent 
Authorities 

D 

Individuals 

I 

Market 
operators 

D 

Competent 
Authorities 

D 

Individuals 

I 

Amendments 
to ensure better 
coverage 
according to the 
Council 
conclusions of 
27 November 
2000 

-  
(Market distortions) 
≈ 
(No additional costs) 
- 
(Lack of clarity) 
-  
(Budgetary loss)  

≈  
(no additional costs) 
- 
(poor statistics) 
- 
Less horizontal 
equity 
+ 
(Less distortions) 
- 
(higher costs) 
+ 
(More clarity) 
+ 
(Budgetary 
protection) 
-  
(Higher costs) 
+ 
(better statistics) 

+ 
horizontal equity  

On-going 

on-going 

dynamic 

One-off 

static 

on-going  

dynamic 

Short-term 

On-going 

dynamic 

One-off 

static 

high 

high  

Medium 

certain 

high 

on-going  

high 

dynamic 

Medium term 

Medium 

EN 

28 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
Amendments 
to ensure 
extension of 
the current 
scope, to close 
loopholes and 
include some 
further savings 
products, 
mainly in the 
hands of 
individuals 

Amendments 
to enlarge the 
scope to legal 
persons and to 
a wide range of 
savings 
products 

Market 
operators 

D 

Competent 
Authorities 

D 

Individuals 

I 

Market 
operators 

D 

Competent 
Authorities 

D 

Individuals 

D 

I 

++ 
(Less distortions) 
- 
(higher costs) 
+ 
(More clarity) 

+ 
(Budgetary 
protection) 

-  
(Higher costs) 
+ 
Better statistics 

++ 
horizontal equity  

+ 
(Less distortions) 
- - 
(Higher costs ) 
+ 
(More clarity) 
++ 
(Budgetary 
protection) 
- 
Redundancies 

- 
(Higher costs) 
+ 
Better statistics 
- 
Multiple 
withholdings 

++ 
horizontal equity 

Short-term 

dynamic 

On-going 

dynamic 

One-off 

static 

certain 

high 

On-going 

high 

dynamic 

Medium term 

Medium 

Short-term 

certain 

dynamic 

On-going 

One-off 

static 

high  

on-going  

dynamic 

low 

Short-term 

dynamic 

Medium 

on-going 

dynamic 

high 

on-going 

high 

dynamic 

Medium term 

Medium 

5.3. 

Preferred option 

In  view  of  the  above  analysis,  and  as  shown  in  the  summary  table,  the  third  option,  i.e.  to 
amend  the  Directive  to  refine  the  current  scope,  to  close  loopholes  and  include  some 
further savings products, mainly in the hands of individuals and to clarify and simplify 
certain rules, appears as the best option at present. The first option (i.e. no action) should be 
rejected for not closing the current loopholes in the Directive that have a negative impact on 
public revenues and on competition in the financial markets. Furthermore, as explained above, 

EN 

29 

   EN 

 
 
 
 
 
 
 
 
 
the  EBF  considers  that  the  Directive  needs  to  be  modified  to  clarify  certain  aspects  and  to 
remove the rule of paying agent on receipt unless it also applies to the agreements signed with 
Third Countries. 

In  comparison  with  option  2,  the  costs  to  be  incurred  by  current  paying  agents  and  new 
paying  agents  should  be  outweighed  by  less  distortion  between  products  of  similar 
characteristics and by a positive impact on the budget of Member States. Furthermore, trusts 
would be treated in the same terms as foundations and transparent entities that serve as special 
purpose vehicles for investments by individuals. 

Option 4 would be more comprehensive than option 3 but its application would involve more 
costs  and  could  also  lead  to  redundancies  of  information  and  to  double  withholding  (unless 
radical  changes  in  the  functioning  of  the  Directive  are  accepted  by  the  Member  States 
admitted  to  the  transitional  regime).  Furthermore,  option  4  does  not  seem  to  respect  the 
principle  of  proportionality  since  the  additional  burden  and  costs  on  both  the  competent 
authorities and the paying agents could go beyond what can be considered to be justified to 
achieve  the  objectives  of  the  Directive.  This  has  to  be  carefully  considered  in  the  present 
difficult  situation  of  international  financial  markets  On  the  other  hand,  the  advantages  that 
could be derived from option 3 would still justify the effort for all the actors concerned and 
therefore respect the principle of proportionality. 

5.4. 

Other (general) considerations 

The same or equivalent measures have also been applied since 1 July 2005 in 10 dependent 
and  associated  territories  and  in  5  European  non-EU  countries.  Any  amendment  to  the 
Directive  would  not  be  directly  applicable  to  the  15  non-EU  jurisdictions.  Therefore,  any 
amendments to the scope of the Directive, mainly those concerning the definition of interest 
payment, the beneficial owner and/or the paying agent on receipt rule, would make necessary 
a review of the agreements with the 10 dependent and associated jurisdictions that apply the 
same measures.  

As far as the 5 non-EU countries that apply equivalent measures are concerned, the Council 
would  have  the  last  word  on  whether  the  agreements  signed  before  1  July  2005  with  the  5 
countries would still provide for equivalent measures to the amended Directive. However, it is 
the  view  of  the  Commission  that  some  of  the  proposed  amendments  under  option  2  and  3 
(notably  those  related  to  making  more  effective  the  paying  agent  on  receipt  mechanism, 
which  is  currently  not  included  in  these  agreements)  and  definitely  all  the  proposed 
amendments  under  option  4,  as  long  as  the  scope  and  the  functioning  of  the  Directive  is 
substantially  changed,  could  require  a  parallel  change  in  the  agreements  signed  with  the  5 
non-EU  jurisdictions.  The  kind  of  changes  in  the  agreements  which  would  be  linked  to  an 
extension to the agreements of option 4 would be particularly ambitious to achieve, even in 
the present political environment 

In  this  respect  it  is  important  to  highlight  that  in  the  opinion  of  the  EBF,  EU  economic 
operators find themselves at a significant competitive disadvantage to economic operators in 
these  5  Third  Countries  because  of  the  absence  in  the  agreements  of  the  "paying  agent  on 
receipt" rules. According to the EBF, this represents a serious failure to ensure a level playing 
field. Therefore, the EBF is strongly opposed to any extension of Article 4.2 without agreeing 
equivalent  measures  with  the  Third  Countries  concerned  and  also  calls  for  the  abolition  of 
such a rule if the absence of equivalence persists.  

EN 

30 

   EN 

 
As long as the 5 non-EU jurisdictions do not provide for the paying agent on receipt rule (and 
for  un  updating  of  that  rule  as  far  as  the  10  dependent  and  associated  territories  are 
concerned),  Options  3  and  4  propose  to  apply  the  look-through  approach  to  some  of  the 
entities and legal arrangements established in these jurisdictions (such as trusts, Anstalten and 
Stiftungen) 

6. 

SECTION 6: MONITORING AND EVALUATION 

6.1.  What are the core indicators of progress towards meeting the objectives 

Less  tax  evasion  and  less  distortion  in  the  financial  markets  can  be  considered  as  the  main 
objectives  of  the  amendments  to  the  Directive.  When  it  comes  to  measuring  progress  it  is 
difficult to set core indicators since we may not expect in the short-term quantification or even 
a quality assessment of these indicators. This task will rely on the quality and availability of 
statistics to be provided by Member States and market organisations in the future. 

If  it  is  difficult  to  have  an  indicator  of  tax  evasion,  increased  tax  revenues  or  increased  tax 
bases corresponding to debt claim products and assimilated could be a good approximation to 
evaluate the reduction in tax evasion in Member States. However, it has to be considered that 
other  variables  such  as  interest  rates  and  evolution  of  the  real  estate  market  may  have  an 
influence  on  this  indicator.  In  broad  terms  the  total  amount  of  interest  payments  exchanged 
can be also a good indicator of the performance of the Directive in this area. 

In relation to distortions in the financial markets, a good indicator may be possible changes, 
from before to after the application of the new amendments, in investors' decisions in respect 
of products covered by the Directive and those outside the scope.  

Other indicators are administrative costs for both paying agents and competent authorities and 
quality of the information exchanged. 

An improvement in the available statistics from Member States administrations will facilitate 
any evaluation.  

The  mandate  of  the  Expert  Group  on  Taxation  of  Savings  should  be  extended  beyond  31 
December 2008 in order to set up a sort of permanent forum to discuss on the Directive and 
its  impacts  on  market  operators  after  the  introduction  of  possible  amendments  to  the 
Directive.  If  its  mandate  is  actually  extended,  this  group  will  be  asked  to  provide  data 
allowing examination of potential future substitution effects between comparable products.  

6.2.  What 

is 
arrangements? 

the  broad  outline 

for  possible  monitoring  and  evaluation 

As foreseen in the Directive, the Commission has to report to the Council every three years on 
the operation of the Directive. The report is the basis for any proposal to amend the Directive. 
As it has been the case for the first report in 2008, the Commission will start discussions with 
all  the  parties  involved  on  the  application  of  the  Directive,  after  the  amendments  will  be 
introduced, to follow up the impact of the amendments.  

EN 

31 

   EN 

 
7. 

HOW HAS THE OPINION OF THE IA BOARD BEEN TAKEN INTO ACCOUNT? 

On  8  October  2008  the  Impact  Assessment  Board  (IAB)  discussed  the  draft  of  the  Impact 
Assessment (IA) report with the services of the author DG. Further to this meeting, the IAB 
adopted its opinion on the draft version of the IA on 10 October 2008. 

The  recommendations  of  the  IAB  (as  explained  below)  were  considered  by  the  author  DG, 
which led the author DG to introduce a number of changes to the original draft before sending 
a second version to the IAB: 

Better description of the baseline scenario and of the main loopholes in the Directive. 

1. 
Clear overview of how different actors are affected. 

Section 2 "problem definition" has been changed to provide a better definition of the current 
situation of the Directive and the main loopholes as discussed during the consultation process 
with  Member  States  and  market  operators.  A  hierarchy  of  the  identified  problems  has  been 
included  at  the  end  of  the  section  to  facilitate  the  understanding  by  the  reader  as  to  the 
different problems and their relevance. Section 2.2 has been improved to provide more details 
on  the  external  dimension  of  the  Directive,  on  the  link  with  the  dialogue  with  important 
financial  centres  outside  the  EU  and  the  consideration  given  to  the  risk  of  possible  capital 
flights. The different options in section 4 have been modified to provide a better description 
of the impacts of the four options on the three main actors in the application of the provisions 
of the Directive: paying agents, tax authorities and individual taxpayers. The changes to the 
draft IA also include some definitions of technical terms, such as "look through approach" and 
"paying agent on receipt", to make the report more comprehensible.  

2. 

Clear set of options in section 4 

The description of the four options, with solutions to the identified problems, has been moved 
from section 5 to section 4. The differences between option 2 and option 3 have been clarified 
by  explaining  in  more  detail  the  content  of  the  Council  conclusions  of  27  November  2000 
used as benchmark.  

3. 

Significant limitation of the availability of data 

A  new  sub  section  1.3  on  "data  availability"  has  been  introduced  to  better  reflect  the 
information that has been received and considered in the analysis as well as to reflect the lack 
of sufficient information for a quantitative analysis and the impact of this lack. See also table 
8 in the annex. 

4. 

Overview of the input received from stakeholders 

A more detailed explanation has been given of  the view of market operators and how these 
views  have  been  taken  into  account  in  the  different  options.  Table  7  with  the  opinions  of 
Member States and market operators to the suggestions under the preferred option (option 3) 
has been modified accordingly. 

Other  recommendations  in  the  Impact  Assessment  Quality  Check  list  that  was  received 
previously to the IAB meeting have also been taken into account (notably in sections 5.3 and 
6.1)  

EN 

32 

   EN 

 
On 17 October 2008, the IAB adopted its opinion on the second draft version of the IA report. 
The recommendations of the IAB have been considered as follows in this final third version: 

1. 
In relation to the recommendation to strengthen the link between the statement "data 
does not establish that the application of the Directive led to any change in the geographical 
composition of interest-bearing" and the need for immediate action, mention has been made 
of  the  views  of  national  administrations  and  operators  that  improvements  are  in  any  case 
needed (Recommendation 1); 

2. 
Table 1 with the hierarchy of identified problems has been supplemented with cross-
references to the different options in section 4. These links will allow a better understanding 
of the relationship between identified problems and proposed solutions (Recommendation 1); 

3. 
The  recommendation  of  the  IAB  to  indicate  the  extent  to  which  the  input  received 
from stakeholders has been taken into account does not need further development in the view 
of the author DG. In fact, the descriptions of option 1 and 2 in section 4 provide the view of 
some of the operators (namely EBF and EFAMA) on the proposed solutions and table 7 in the 
annex describes the position of tax administrations and operators on the solutions provided in 
option  3  (the  preferred  option).The  advantages  and  disadvantages  of  option  4  from  the 
viewpoint  of  tax  administrations  and  operators  are  also  summarised  in  section  4 
(Recommendation 2). 

Option 3 in section 4 has been improved by describing the possible options (and the 

4. 
preferred one) for updating the "positive lists"; (Recommendation 2) 

5. 
In  relation  to  the  consequences  of  the  insufficient  availability  of  data,  it  has  been 
clarified at the end of section 1.3 that there is a need to anticipate developments based on the 
input  of  the  stakeholders.  The  lack  of  quantitative  data  should  not  be  a  deterrent  to  act.  In 
section 6.2 it has been clarified that the expert group s on savings taxation will be asked to 
provide  data  which  are  useful  to  examine  the  potential  future  substitution  effects  between 
comparable products (Recommendation 3).  

6. 
Concerning  the  need  to  further  elaborate  on  budget  consequences  for  MS  and 
operators, even if this is impossible to quantify, a new paragraph has been introduced at the 
end of the description of option 3 in section 4; (Recommendation 3) 

7. 

Section 6.3 has become the new section 7. (See point D "procedure and presentation")

EN 

33 

   EN 

 
Table 7: Positions of Member States and Market operators on amendments proposed in option 3 

Annex 

Proposal 

Favourable 

Non favourable 

Comments 

Extending the scope of the 2003 
Directive to include securities 
equivalent to debt claims (with 
substantial capital protection) 

Large majority of MS 

Most economic operators 

1 MS 

The industry of the 
innovative financial 
products (reluctance) 

– 

– 

No special comment from the MS against 

Economic operators' view is that the extension has to 
be  made  with  total  clarity  on  which  financial 
products  will  be  brought  within  the  scope.  It  can  be 
acceptable  only  if  the  need  of  paying  agents  for 
simple  tracking  of  the  securities  concerned  is  taken 
into account. The industry specialized in the creation 
of  innovative  financial  products  would  have  to  be 
charged with this tracking of the securities concerned 
to  the  benefit  of  downstream  paying  agents,  this 
would be possible only for newly issued securities  

EN 

34 

EN 

 
  
 
 
 
 
Proposal 

Favourable 

Non favourable 

Comments 

Extending the scope of the 2003 
Directive to include those life 
insurance contracts providing for 
very low biometric risk coverage 
and investing in debt claims and 
equivalents funds and securities 

A majority of MS  

Some MS 

Most economic operators  

Insurance operators  

– 

– 

– 

– 

Some MS reserved their position about the best legal 
instrument  (Savings  Directive  or  mutual  assistance 
Directive) 

Many  insurance  operators  would  prefer  cooperation 
under  a  single  instrument  for  all  insurance  products, 
but 
the 
the  Savings  Directive  doesn't  seem 
appropriate  instrument  for  this  purpose  and  another 
solution  could  take  time  to  be  found  and  to  be 
possibly agreed with non-EU countries, leaving room 
for distortions in competition 

Tax  treatment  of  these  products  is  not  consistent  in 
all MS. Different views on whether the exclusion of 
these products at present leads to distortions  

Practical  difficulties  to  set  criteria  for  low  biometric 
risk coverage  

EN 

35 

EN 

 
  
 
 
 
 
 
 
Proposal 

 Favourable 

Non favourable 

Comments 

Clarifying the situations where the 
paying agent on receipt mechanism 
applies (Article 4.2) 

Large majority of MS (a few 
MS reserved their positions) 

1 MS 

Most operators, however the 
EBF prefers to abolish the 
mechanism if it is not 
extended to third countries 

Introducing a look-through 
approach in relation to selected 
jurisdictions 

Large majority of Member 
States 

2 MS  

Most economic 
operators 

– 

– 

– 

– 

Doubts on the application to discretionary trusts 

Most  economic  operators  ask  for  a  positive  list  of 
entities and arrangements concerned if the measure is 
to be retained and/or extended 

Some" favourable" MS would even like to apply the 
look-through  approach  to  all  legal  persons,  entities 
and arrangements, and even resident in any EU MS 

Economic  operators  fear  that  this  could  erode 
competitive  position  of  EU  paying  agents.  In  any 
case,  in  favour  of  a  positive  list  and  application 
limited to entities and legal arrangements established 
in third countries 

EN 

36 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provider 

Bank for 
International 
Settlement (BIS) 

– 

– 

– 

– 

Table 8: data availability and shortcomings 

Description 

Shortcomings 

Quarterly data on bilateral cross-border deposits 
by  banks  and  non-banks  for  40  reporting 
include 
countries.  Non-bank 
individuals,  public  institutions  and  businesses 
(non-bank  financial  institutions  such  as  mutual 
funds, hedge funds and insurance companies).  

depositors 

– 

– 

– 

A country breakdown with regard to the country 
of residence of the beneficial owner is available. 

From the Q1 2000 to Q4 2007.  

Not all EU-Member States are included. 

No  split  between  deposits  from  individuals  (covered  by  the 
Directive) and from companies (not covered). 

Dataset mainly covers one instrument (deposits) whose share in the 
total savings might be small. 

to  attract 

Geographical scope includes third countries that 
are  known 
such  as 
Switzerland,  Cayman  Islands,  Bermudas,  etc. 
Singapore  and  Macao  and  partially  Japan  did 
not provide any data 

savings 

EN 

37 

EN 

 
  
 
Provider 

EUROSTAT 

Member States and 
territories  where 
Directive is applied

– 

– 

– 

– 

– 

Description 

Shortcomings 

National  accounts  data  on  aggregated  interest 
income split by source country is available. 

1995 to 2006 for EU-27 with some gaps 

Bilateral  data  on  information  exchange  and  tax 
withhold (when applicable).  

Number  of  beneficial  owners,  residual  entities, 
paying  agents,  and  number  of 
records 
exchanged between countries 

Available  for  the  second  half  of  2005  and  for 
2006. 

– 

– 

– 

– 

– 

Only  for  Member  States.  Available  Data  stems  from  the  national 
authorities.  

Definition of interest payments according to the national accounts is 
not  identical  to  the  definition  of  interest  payments  in  the  Savings 
Directive. 

Covers  both  interest  from  foreign  (covered  by  Directive)  and 
domestic (not covered) sources. 

Data quality is partly unsatisfying as many data are still missing and 
awaited from Member States.  

Cannot  be  used  to  evaluate  the  impact  of  the  Directive  on 
investment  and  tax  evasion  since  it  provides  only  the  data  that  are 
actually exchanged. 

EN 

38 

EN