The European Commission published on November, 13th, a Proposal for a Council Directive  amending Directive 2003/48/EC on taxation of savings income in the form of interest payments.

Council Directive 2003/48/EC of June, 3rd, 2003 on taxation of savings income in the form of interest payments (the ‘EUSD’) has been applied in EU Member States since July, 1st, 2005. The ultimate aim of the EUSD, is to enable savings income in the form of interest payments made in one MS to beneficial owners who are individuals resident for tax purposes in another MS to be made subject to effective taxation in accordance with the laws of their State of residence.

However, when the EUSD became applicable in 2005, it was apparent that further refinements were advisable to take account of developments in savings products and in investor behaviour. Domestic tax systems have also shifted towards treating income from some types of innovative financial products as equivalent to interest from debt claims.

Hence, to take into  account of such developments, and following EUSD provisions, the Commission proposes the necessary amendments to remove undesirable distortions of competition.

Main EUSD Amendments

The most important proposed amendments refer to the definition of savings income, to accommodate developments in savings products in recent years. The proposed amendments are intended to cover not only savings income in the form of interest payments, but other, substantially equivalent, income from some innovative financial products and from certain life insurance products that are comparable to debt claim products. If more comprehensive solutions ensuring exchange of information between the tax administrations of EU MS on the full range of life insurance contracts were to be implemented, the need to cover benefits from these life insurance products under the EUSD could possibly be reconsidered.

It is also proposed to extend the scope of the Directive to cover, under certain conditions, interest payments obtained by some entities and legal arrangements for the ultimate benefit of individual beneficial owners. Significant refinements are also proposed to the definition of the ‘paying agent upon receipt of an interest payment’, in order to improve the effectiveness of this mechanism and the legal certainty for market operators.