On 9 December 2014, the Council of the European Union adopted Directive 2014/107/EU amending Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation which now provides for an automatic exchange of financial account information between EU Member States (“DAC Directive”), including income categories contained in the EU Savings Directive.
The adoption of the aforementioned directive implements the OECD Common Reporting Standard (“CRS”) and generalizes the automatic exchange of information within the European Union as of 1 January 2016. To avoid duplication reporting standards, the EU Council adopted on 10 November 2015 Council Directive 2015/2016 repealing Directive 2003/48/EC on taxation of savings income in the form of interest payments which effectively phases out the EU Savings Directive at the same time as the CRS is phased in. Consequently, the EU Savings Directive ceases to be applicable in the EU Member States effective 1 January 2016 (2017 in Austria).
In Luxembourg, the Law of 23 July 2016 implementing Directive 2015/2060 correspondingly repeals the Law of June 2005 implementing the EU Savings Directive. Similarly, the Bilateral Agreements with certain associated or dependent territories or third countries, introducing measures identical or equivalent to those of the EU Savings Directive will cease to apply, as all such signatory jurisdictions have also signed the CRS Multilateral Competent Authorities Agreement and will therefore also be exchanging information in accordance with the CRS with including Luxembourg and other Member States. However, of the jurisdictions whose EU Savings Directive Bilateral Agreements are reciprocal Sint Marteen and Aruba will only apply CRS starting 1 January 2017. The CRS is applicable to reporting financial institutions. This definition is quite wide and covers, among others, custodial institutions, depository institutions, investment entities and specified insurance companies unless they present a low tax evasion risk and are excluded from reporting.
Non-reporting financial institutions include:
- Government entities, international organizations and central banks;
- Broad participation retirement funds, narrow participation retirement funds, qualified credit
- card issuers and pension funds of government entities, international organizations and
- central banks;
- Entities that present a low risk of tax evasion and have certain characteristics (such entities
- will be defined by local law);
Exempt collective investment vehicles;
Trusts, if the trustee is a reporting financial institution that reports all necessary information on behalf of the trust.
The list of accounts covered by the CRS includes depository accounts, custodial accounts, cash value insurance contracts, annuity contracts and certain equity or debt interests in a financial institution. Under the terms of the CAA, the partner jurisdictions agree to exchange information on account holders which have their tax residence jurisdiction in the other jurisdiction. Generally, information will be exchanged between the competent authorities within nine months after the end of the calendar year. Therefore, this information will need to be reported by financial institutions significantly earlier than this. It is, however, left to each jurisdiction to define the timeframe for reporting by financial institutions.
The information to be reported includes:
- The name, address, taxpayer identification number (TIN) and date of birth (for individuals);
- Account number (or functional equivalent);
- Account balance or value;
- Gross amounts paid to the account in the year;
- Total gross proceeds paid or credited to the account.
Although, the EU Savings Directive has been repealed by Council Directive of 2015/2060 of 10 November 2015 with effect from 1 January 2016, for a transitional period, the EU Savings Directive shall continue to apply and notably regarding reporting obligations and scope of information to be provided by the Luxembourg paying agent (within the meaning of the EU Savings Directive) and regarding obligations of the Member States in respect of the issuance of the tax residence certificate and elimination of double taxation. Investors should get further information about, and where appropriate take advice on, the impact of the changes to the EU, the implementation of the DAC Directive, the Multilateral Agreement and the CRS system in Luxembourg and in their country of residence on their investment.