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| EU Savings Directive |
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This directive is designed to combat tax evasion by individuals on cross-border savings income. Under the Directive, information will be collected about the payment of savings income to residents of prescribed countries (25 EU countries and 5 European third countries as well as 8 British Territories in the Channel Islands and the Caribbean, and 2 Dutch Territories , Aruba and the Netherlands Antilles ) and exchanged automatically with tax authorities in those countries. The Cyprus Regulations, expected to be approved by the House of Representatives in time to be in force as from 1 st July 2005, will set out the detailed rules for the Cyprus scheme implementing the Directive.
The ultimate aim of the Savings Directive is to enable savings income in the form of interest payments to be made subject to effective taxation in accordance with the laws of the Member State or participating country of residence. It will not apply to companies or other persons.
This will be achieved by the automatic exchange of information between Member States concerning interest payments covered by this Directive. The automatic exchange of information makes possible the effective taxation of those payments in the beneficial owner's Member State of residence for tax purposes in accordance with the national laws of that State. The Cyprus tax laws provide for exemption of interest at source where the beneficial owner is a non resident.
In view of structural differences, Austria , Belgium and Luxembourg cannot apply the automatic exchange of information at the same time as the other Member States. During a transitional period, given that a withholding tax can ensure a minimum level of effective taxation, especially at a rate starting at 15% in the first three years, increasing progressively to 20% in the next three years and then increasing to 35%, these three Member States (as well as all other countries adopting withholding tax) should apply a withholding tax to the savings income covered by this Directive during this transitional period. Member States and other territories applying withholding should transfer the greater part of their revenue of this withholding tax (75%) to the Member State or territories of residence of the beneficial owner of the interest.
The countries that are to withhold tax at source without transferring information to the country of residence of the beneficial owner of the interest are:
EU Member countries: Austria , Belgium , Luxembourg,
European third countries: Switzerland, Liechtenstein, San Marino, Monaco and Andorra,
British dependent territories: Jersey, Guernsey, Isle of Man, British Virgin Islands, Turks & Caicos,
Netherlands dependent territory: Netherlands Antilles.
The following countries or dependent territories will exchange information: all other 22 EU Member countries and Cayman Islands, Montserrat, Aruba and Anguila.
Cyprus will collect information from the Cyprus paying agents and forward them to the appropriate countries of residence of the beneficial owners of the interest payments. The legal provisions for this will be provided under the Regulations based on the EU Savings Directive, the Agreements between the European Community and the European Third Countries, published in the European Community Gazette (Switzerland: L385/28, 29.12.2004, Andorra: L359/32, 4.12.04, Liechtenstein: L379/04, 24.12.2004, San Marino, L381/32, 28.12.04 and Monaco: L19/53,21.1.05) and the bilateral agreements signed by each EU Member State with each of the dependent territories of the UK and the Netherlands participating in the Scheme (see international conventions below).
In addition to the Regulations, certain amendments are to be made to the Assessment and Collection of Taxes Law of 1978, 4/78 as amended, including the insertion in section 2 of the term "prescribed territory"
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