The European Union withholding tax is a withholding tax which is deducted from interest earned by European Union residents on their investments made in another member state. Its aim is to ensure that citizens of one member state do not avoid taxation by depositing funds outside the jurisdiction of residence. The rate of tax is currently at 15% of the interest earned. The tax is withheld at source and passed on to the EU Country of residence without any disclosure as to who was actually the recipient of the interest concerned.^{[citation needed]} (Most EU states already apply a withholding tax to savings and investment income earned by their nationals on deposits and investments in their own states. The Directive seeks to bring inter-state income into the same arrangement, under the Single Market policy). The principle of a withholding tax is that it is withheld (retained) by the payer and given directly to the taxation authorities. ... This article contrasts tax evasion, tax avoidance, tax resistance and tax mitigation. ... A single market is a customs union with common policies on product regulation, and freedom of movement of all the four factors of production (land, enterprise, capital and labour). ...

Date of introduction

The tax was introduced at the time of the introduction of the European Union Savings Directive (EUSD) on the taxation of interest income from savings within the European Union. This came into effect on the 1st July 2005. The European Union withholding tax, more commonly known as the EU withholding tax is a withholding tax which is deducted from interest earned by European Union residents on investments in another member state. ...

Objective of the EU Savings Directive

The original aim of the EUSD was that all counties would freely disclose interest earned by a resident of an EU country in order to ensure that the interest was fully declared in his country of residence. The plan was that non-EU countries would also agree to disclose information about the interest earned by EU residents. Many non-EU states and countries agreed to introduce similar measures. These countries included most tax havens and dependent territories of the EU countries. Countries such as Jersey, Guernsey, Cayman Islands, Andorra, Turks & Caicos, British Virgin Islands, Monaco, Switzerland, and many others thus agreed to implement similar or transitional arrangements (see below). The transitional arrangements involved the payment of a withholding tax whilst bank secrecy remained protected. The principle of a withholding tax is that it is withheld (retained) by the payer and given directly to the taxation authorities. ...

Maintenance of bank secrecy laws and the EU withholding tax

Some countries agreed to fully comply with the EU Savings Directive by disclosing the names of their account holders and the interest that they earned. However, several other EU and non-EU countries, such as Switzerland, objected to the disclosure of account holders' names on the grounds that such a disclosure would be contrary to their bank secrecy laws. Bank secrecy laws prevent the disclosure of information about account holders, their assets, and their interest or other income. Bank secrecy (or bank privacy) is a legal principle under which banks are allowed to protect personal information about their customers, through the use of numbered bank accounts or otherwise. ...

Finally an agreement was struck with the objecting countries. The objecting countries achieved agreement from the EC that no further attempt would be made to commence negotiations regarding bank secrecy rules for at least 7 years, in return for which individual account holders could, if they so wished, voluntarily elect to waive bank secrecy and authorise disclosure. Those individuals who did not make any election would see a withholding tax deducted from their bank and bond interest. To avoid the withholding tax, certain types of individuals could also prove that they were exempt from taxation in their country of residence. Exempt individuals include certain diplomats and others with a special tax status in their country of residence. The Commission seat in Brussels The European Commission (formally the Commission of the European Communities) is the executive body of the European Union. ...

Accordingly, in order to guarantee privacy and bank secrecy for EU residents who have accounts within certain territories such as Switzerland, a withholding tax of 15% is being levied on the interest earned by those EU residents. This withholding tax, which applies only to certain interest, such as bank deposit interest and bond interest, is passed on anonymously to the EU countries concerned, and is known as the EU Withholding Tax.

Countries affected

The EU withholding tax currently applies to the residents of the 27 European Union Member States as shown below: It has been suggested that this article or section be merged into European Union. ...

Together with their dates of accession, the 27 current members of the European Union are:

Image File history File links Flag_of_Austria. ... Year 1995 (MCMXCV) was a common year starting on Sunday (link will display full 1995 Gregorian calendar). ... Image File history File links Flag_of_Belgium_(civil). ... Year 1952 (MCMLII) was a leap year starting on Tuesday (link will display full calendar) of the Gregorian calendar. ... Year 1958 (MCMLVIII) was a common year starting on Wednesday (link will display full calendar) of the Gregorian calendar. ... Image File history File links Flag_of_Bulgaria. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... Image File history File links Flag_of_Cyprus. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_the_Czech_Republic. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Denmark. ... For the song by James Blunt, see 1973 (song). ... Image File history File links Flag_of_Estonia. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Finland. ... Year 1995 (MCMXCV) was a common year starting on Sunday (link will display full 1995 Gregorian calendar). ... Image File history File links This is a lossless scalable vector image. ... Year 1952 (MCMLII) was a leap year starting on Tuesday (link will display full calendar) of the Gregorian calendar. ... Year 1958 (MCMLVIII) was a common year starting on Wednesday (link will display full calendar) of the Gregorian calendar. ... Image File history File links Flag_of_Germany. ... Year 1952 (MCMLII) was a leap year starting on Tuesday (link will display full calendar) of the Gregorian calendar. ... Year 1958 (MCMLVIII) was a common year starting on Wednesday (link will display full calendar) of the Gregorian calendar. ... Image File history File links Flag_of_Greece. ... Year 1981 (MCMLXXXI) was a common year starting on Thursday (link displays the 1981 Gregorian calendar). ... Image File history File links Flag_of_Hungary. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Ireland. ... For the song by James Blunt, see 1973 (song). ... Image File history File links Flag_of_Italy. ... Year 1952 (MCMLII) was a leap year starting on Tuesday (link will display full calendar) of the Gregorian calendar. ... Year 1958 (MCMLVIII) was a common year starting on Wednesday (link will display full calendar) of the Gregorian calendar. ... Image File history File links Flag_of_Latvia. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Lithuania. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Luxembourg. ... Year 1952 (MCMLII) was a leap year starting on Tuesday (link will display full calendar) of the Gregorian calendar. ... Year 1958 (MCMLVIII) was a common year starting on Wednesday (link will display full calendar) of the Gregorian calendar. ... Image File history File links Flag_of_Malta. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_the_Netherlands. ... Year 1952 (MCMLII) was a leap year starting on Tuesday (link will display full calendar) of the Gregorian calendar. ... Year 1958 (MCMLVIII) was a common year starting on Wednesday (link will display full calendar) of the Gregorian calendar. ... Image File history File links Flag_of_Poland. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Portugal. ... Year 1986 (MCMLXXXVI) was a common year starting on Wednesday (link displays 1986 Gregorian calendar). ... Image File history File links Flag_of_Romania. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... Image File history File links Flag_of_Slovakia. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Slovenia. ... Year 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... Image File history File links Flag_of_Spain. ... Year 1986 (MCMLXXXVI) was a common year starting on Wednesday (link displays 1986 Gregorian calendar). ... Image File history File links Flag_of_Sweden. ... Year 1995 (MCMXCV) was a common year starting on Sunday (link will display full 1995 Gregorian calendar). ... Image File history File links Flag_of_the_United_Kingdom. ... For the song by James Blunt, see 1973 (song). ...

Income on which the EU tax is deducted

The EU withholding tax applies only to bank interest, bond interest, and analogous income, such as income from bond funds, money-market funds, loans, and mortgages.

Anti-avoidance

Certain anti-avoidance measures exist, for example, to levy the tax where interest has been converted to some form of capital gain. Typically this would apply where, for example, a zero coupon bond has been bought and sold at a profit, or where a bond fund, or a money-market fund, does not pay out its interest and the fund is subsequently sold at a profit. The rules define how much of the fund's assets must be in bonds for it to be classified as "interest earning".

Initial reports as to the amounts of funds raised by the withholding tax suggest that the anti-avoidance measures have not been particularly effective.[1]

Income gains and profits which are not taxed

The EU withholding tax is not levied on any other forms of income such as employment income, trading profits, commercial activities, royalties, annuities and similar income. Also, the EU withholding tax does not apply to dividends from shares, nor to capital gains and other profits realised on investments. All these types of income and profits are described as being "out of scope".

Individuals and accounts which are not affected

The EU withholding tax is levied only on individuals and not on companies, discretionary trusts, foundations, stiftungs, anstalts, investment funds, etc., except in very special circumstances, e.g. a "bare trust". Look up company in Wiktionary, the free dictionary. ... A discretionary trust[1] is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by the settlor. ... A charitable foundation is a legal categorization of nonprofit organizations that either donate funds and support to other organizations, or provide the sole source of funding for their own activities. ... Institutional fund management is fund management conducted by large financial firms such as banks, insurance companies and major investment organisations (e. ... A bare trust is one in which the beneficiary has a right to both income and capital and may call for both to be remitted into their own name, they are also entitled to take actual ownership and control of the trust property. ...

The EU withholding tax is not deducted from individuals who reside outside the European Union. Thus, for example, a resident of Jersey or of Switzerland, would not pay the tax, even though these countries have signed the agreement with the EU. Neither Jersey nor Switzerland is in the European Union.

UK Resident but not UK domiciled individuals

In the UK such individuals have a special tax status which limits them to paying tax on income and gains from UK sources, and on foreign income and gains which are remitted to the UK. A similar status can be accorded to individuals in some other European countries (e.g. Belgium and the Netherlands), because they are only temporarily resident for the purpose of employment. Certain countries such as Jersey and Switzerland accept that these individuals may be exempt from tax on income earned and retained overseas, and are thus not subject to any retention. Needless to say, the exemption needs to be proven.

Beckham Law

Spain has introduced a similar concept to the UK non-domiciled rule above, known as the Beckham law. The law gained its nick-name after the footballer David Beckham became one of the first foreigners to take advantage of it. However the law is aimed at all foreign workers (particularly the wealthier ones) living in Spain. Upon application and acceptance such individuals are only liable for Spanish taxes on their Spanish source income and assets. As with the UK non-domiciled individuals, exemption from tax on foreign income must be proven to the financial institution to avoid the EU Savings Tax deduction. This article or section is in need of attention from an expert on the subject. ... David Beckham David Robert Joseph Beckham OBE (born May 2, 1975) is an English footballer born in Leytonstone, London. ...

The transitory provisions of the Withholding Tax

The Countries that would be applying the transitory provisions, instead of exchanging information will retain withholding tax as follows:

• 15% in the first three years (2005-07-01 – 2008-06-30),
• 20% in the next three years (2008-07-01 – 2011-06-30), and
• 35% after 2011-07-01.

With regard to the distribution of their withholding tax, the Directive provides that all Countries that are withholding it will retain 25% of all receipts at their end and will transfer the remaining 75% to the Member State where the beneficiary owner is resident. Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... is the 182nd day of the year (183rd in leap years) in the Gregorian calendar. ... 2008 (MMVIII) will be a leap year starting on Tuesday of the Gregorian calendar. ... is the 181st day of the year (182nd in leap years) in the Gregorian calendar. ... 2008 (MMVIII) will be a leap year starting on Tuesday of the Gregorian calendar. ... is the 182nd day of the year (183rd in leap years) in the Gregorian calendar. ... 2011 (MMXI) will be a common year starting on Saturday of the Gregorian calendar. ... is the 181st day of the year (182nd in leap years) in the Gregorian calendar. ... 2011 (MMXI) will be a common year starting on Saturday of the Gregorian calendar. ... is the 182nd day of the year (183rd in leap years) in the Gregorian calendar. ...

With regard to double taxation, the Directive provides that the Member State where the beneficiary owner is resident, and therefore where he normally pays his tax dues, should ensure that tax is not paid more than once when applying the withholding tax rates.

Countries providing for the exchange of information

All EU Member States with the exception of Belgium , Luxembourg , and Austria have agreed to exchange information with each other. Image File history File links Flag_of_Belgium_(civil). ... Image File history File links Flag_of_Luxembourg. ... Image File history File links Flag_of_Austria. ...

Gibraltar is deemed to be part of the UK for the purposes of the EU Savings Directive and thus will exchange information with other EU countries such as Spain and the UK. Residents of Gibraltar will either suffer withholding tax on interest arising overseas, or have that income reported to the UK who will pass it on to Gibraltar authorities. Image File history File links Flag_of_Gibraltar. ...

Among the third countries signatories there are also, Anguilla , Cayman Islands , Montserrat and Aruba who have agreed to exchanging information. Image File history File links Flag_of_Anguilla. ... Image File history File links Flag_of_the_Cayman_Islands. ... Image File history File links Flag_of_Montserrat. ... Image File history File links Flag_of_Aruba. ...

Countries providing for the withholding tax retention under the Transitory Provisions

The following countries maintain bank secrecy and will deduct the withholding tax from interest:

From among the EU Member States, the following countries maintain bank secrecy:

• Austria
• Belgium
• Luxembourg

Other countries (Not EU member states), (the following countries also maintain bank secrecy):

• Andorra
• British Virgin Islands
• Channel Islands
• Dutch Antilles
• Isle of Man
• Liechtenstein
• Monaco
• San Marino
• Switzerland
• Turks and Caicos Islands

This article is about the British dependencies. ... The Netherlands Antilles (Dutch: Nederlandse Antillen), previously known as the Netherlands West Indies, are part of the Lesser Antilles and consist of two groups of islands in the Caribbean Sea that form an autonomous part of the Kingdom of the Netherlands (none of the other Antilles use this term in...

Countries who did not sign any agreement

Singapore, Hong Kong, Bermuda and Barbados did not sign any agreement.

External links to legislation, guidelines and commentary

• European Council Directive 2003/48/EC
• Article regarding implications of the EU Savings Tax Directive
• Swiss implementation of EU Savings Directive in French

See also

• Offshore bank
• Private bank
• Swiss bank
• Domicile