COUNCIL DIRECTIVE 2003/48/EC

(on taxation of savings income in the form of interest payments)

The Directive – Purpose

On 3 June 2003, the Council of the European Union adopted Directive 2003/48/EC applicable with effect from 1 July 2005⁽¹⁾, whose purpose is to enable savings income in the form of interest payments made in one Member State to beneficial owners who are physical persons with a residence for tax purposes in another Member State to be taxed in accordance with the laws of the latter Member State. National laws transposing the Directive will apply from 1 July 2005.⁽²⁾ The purpose of this Administrative Notice is to consider its effects on serving officials and other servants of the European Communities.

Existing tax obligations of serving EC officials and other servants

Serving officials and other servants of the European Communities who, solely by reason of the performance of their duties in the service of the Communities, establish their residence in the territory of a Member State other than their country of domicile for tax purposes⁽³⁾ at the time of entering the service of the Communities, are considered as having kept their tax domicile. The domicile for tax purposes of serving officials and other servants of the European Communities is governed by Article 14 of the Protocol on privileges and immunities (PPI). They are exempt from national taxes on their EC salaries (Article 13 of the PII) but for all other income are required to comply with national rules, i.e.:

• declare their world income (including investment income such as interest) and pay the corresponding tax on that income in accordance with the rules of the country in which they are resident for tax purposes;
• in the case of income from sources located in another country (than that in which they are resident for tax purposes), they must in addition comply with the tax requirements in that other country.

Directive 2003/48/EC does not alter in any way the implementing provisions for Articles 13 and 14 of the PPI in the case of serving EC officials and other servants

The Belgian tax authorities apply for their own account a withholding tax (précompte mobilier) on the income from Belgian savings⁽⁴⁾ received in Belgium. Serving EC officials and other servants may be exempted from payment of withholding tax if they present form 276 EUR which specifies that their residence for tax purposes is in a European Union country other than Belgium, and implies that they will declare the exempted income in the country in which they are resident for tax purposes.

The exchange of information provided for in the Directive and the withholding tax provided for therein⁽⁵⁾

Directive 2003/48/EC introduces arrangements for the automatic exchange of information between Member States concerning savings income in the form of interest payments. However, during a certain period (in principle until 2011) it gives three Member States (Belgium, Luxembourg and Austria) the option of levying a withholding tax rather than participating in the arrangements for the exchange of information.

• The above arrangements for the exchange of information will be applied immediately by the other 22 (out of the 25) EU Member States. This means that where a financial institution pays interest to a resident of another EU country that body must provide the competent authorities in its country with the following information: the identity, residence and account number of the beneficial owner and information (including the amount) concerning the interest payment. The Member States will send this information at regular intervals to the Member States of residence of the beneficial owners. This enable the savings interest, regardless of the country in which it is received, to be taxed in accordance with national tax law.
   
• During a transitional period three Member States (Belgium, Luxembourg and Austria) may apply different arrangements consisting in general of a withholding tax⁽⁶⁾ on interest payments. The rate of this withholding tax will be 15% in the first three years with effect from 1 July 2005, 20% in the following three years (from 1 July 2008) and 35% thereafter (from 1 July 2011). The proceeds of the withholding tax are intended for the Member State of residence for tax purposes but the levying country will retain 25%.

Consequences of the Directive for serving EC officials and other servants

The Directive will apply to all serving officials and other servants who receive interest payments in a Member State other than their country of tax residence. However, this Administrative Notice is intended essentially for officials and other servants stationed in Belgium (and Luxembourg) who, according to Article 14 of the PPI have retained their residence for tax purposes in a Member State other than Belgium (or, as appropriate, Luxembourg).

The withholding tax (hereafter called ‘PER’ despite the fact that this expression is used in Belgium only) does not provide a full discharge of tax liability. It does not exempt savers from declaring their savings income to the tax authorities of their country of residence for tax purposes. The withholding tax will be deducted in full from the tax liability determined by the latter authorities, with any surplus being reimbursed to the taxpayer.

Under Article 14 of the Directive serving EC officials and other servants may receive from their paying agent⁽⁷⁾ in Belgium, Luxembourg and Austria a withholding tax certificate making it possible for them to obtain a tax credit (or a refund) in their Member State of residence for tax purposes.

Exemption from ‘PER’

Under the Directive, exemption from ‘PER’ can be obtained in two ways:

1. Beneficial owners can authorise the financial institution to communicate to the tax authorities of their Member State of residence for tax purposes information about their savings income.
    
2. Beneficial owners can present their financial institution with a certificate⁽⁸⁾ drawn up in their name by the competent authority in their Member State of tax residence. This certificate will contain the following details:
    
   • the name, address and tax identification number⁽⁹⁾, or, failing that, the place and date of birth of the beneficial owner;
   • the name and address of the financial body;
   • the account number of the beneficial owner or, where there is none, the identification of the security.

   Certificates issued by the authorities of the Member State of tax residence and intended for the paying agency may be valid for a period of not more than three years. It is important to note that if the certificate fails to show a period of validity one must be presented each time an interest payment is made.

For the application of this Directive:

• Luxembourg will provide for both of these procedures (authorisation to transmit information to the Member State of tax residence and certificate from that Member State);
• Belgium will authorise the second procedure only, based on a certificate from the Member State of tax residence.

It is important in this respect that EC officials and other servants who apply for such a certificate to the authorities in their Member State of tax residence check that it contains a period of validity. It will be up to the tax authorities in their Member State of tax residence to fix that period (not more than 3 years). If the certificate fails to show a period of validity a certificate must be presented each time an interest payment is made.

Other relevant information

If contractual relations have been entered into between a beneficial owner and a financial institution before 1 January 2004, the identity of the residence for tax purposes will be established on the basis of information in the possession of the institution. If there are doubts a new residence for tax purposes will be established as in the case of ‘new relations’ (from 1 January 2004).

If contractual relations are entered into on or after 1 January 2004, the Directive provides that the banking institutions will determine the presumed residence for tax purposes of the beneficial owner on the basis of the address given on the passport or official identity card or, if necessary, on the basis of any documentary proof of identity presented by the beneficial owner. For the majority of officials and other servants, the Member State of the address shown on the passport will not be the same as that of the residence for tax purposes, under Article 14 of the PPI. For that reason Belgium will consider the residence for tax purposes of serving officials and other servants recruited from outside Belgium to be in the territory of the Member State of which they are a national.

That being so, it is recommended that serving officials and other servants check that the paying agent (bank) is aware of their residence for tax purposes as determined by Article 14 of the PPI.

Where necessary, documentary proof (a certificate from the employer) may be issued by the institution of serving officials or other servants confirming their residence for tax purposes (a model of this document is available via http://www.cc.cec/hrmforms/⁽¹⁰⁾).

Use of the 276 EUR document in Belgium permits exemption from Belgian withholding tax, has the effect of confirming the residence for tax purposes of serving EC officials and other servants and entails the application of the ‘PER’.

The ‘PER’ will apply to the total amount of the interest payments covered by the Directive.⁽¹¹⁾

“Interest payment” (Article 6 of the Directive) means more than “interest” in the strict sense. Your bank can provide you with information about the products covered and not covered by the Directive.

The countries applying a withholding tax (Belgium, Luxembourg and Austria) will apply this levy on interest payments accrued and made from 1 July 2005, thus excluding the part of interest accrued before that date⁽¹²⁾. In the case of the 22 countries that have chosen the exchange of information, the tax authorities of the Member State of residence for tax purposes will be notified not later than 1 July 2006 (5 October 2006 for payments received in the United Kingdom) of all interest payments for the period between 1 July and 31 December 2005.

Additional information will be made available on the Commission intracomm site before 1 July 2005 and a special page (‘Taxation of saving income - Directive’) will be devoted to the Directive.
http://www.cc.cec/pers_admin/privileges_bxl/savingaccount_en.html 

From that date onwards, any question still unanswered may be put to Commission staff at the following e-mail addresses

• for Brussels (including press offices, Delegations): ADMIN-BXL B3 FISCALITE;
• for Luxembourg: ADMIN-LUX C2 FISCALITE;
• for the Joint Research Centres: PMO ISPRA FISCALITE.
  Replies will be given in question-and-answer form (FAQ) on a special page on the site.

Note: This Administrative Notice provides general information in the possession of the administration. Your bank and the authorities in your Member State of residence for tax purposes are at your disposal for answering more specific questions.
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Footnotes

• ⁽¹⁾Council Decision of 19 July 2004, OJ L 257, 4.8.2004, p. 7.
• ⁽²⁾See 1
• ⁽³⁾Domicile for tax purposes (in the Protocol on privileges and immunities) = tax residence (in the Directive)
• ⁽⁴⁾Accrued therefore on accounts opened in Belgian banks and on debt certificates issued in Belgium.
• ⁽⁵⁾Known in Belgium as the ‘prélèvement pour l’Etat de résidence (levy for the country of residence)’ or 'PER’.
• ⁽⁶⁾Known in Belgium as ‘prélèvement pour l’Etat de résidence’ (levy for the country of residence) or ‘PER’ and not to be confused with the withholding tax referred to above in this Administrative Notice.
• ⁽⁷⁾Paying agent means any economic operator who pays interest to or secures the payment of interest for the immediate benefit of the beneficial owner.
• ⁽⁸⁾Since standard model certificates have not been drawn up, each national authority will issue certificates based on its own models.
• ⁽⁹⁾Internet addresses for the national tax authorities will be available on the Commission’s intranet site (being prepared).
• ⁽¹⁰⁾In addition, the Commission will look into the possibility of requesting Belgium to amend the implementing Order to take account of the Staff Regulations of serving EC officials and other servants who are subject to Article 14 of the PPI.
• ⁽¹¹⁾It is up to the Member State of residence for tax purposes of the beneficial owner to determine exempt income thresholds, if any, when establishing final taxes.
• ⁽¹²⁾Conclusions of the ECOFIN Council meeting of 12 April 2005.