SACC EU Tax Package and Impact on Switzerland 18 9

The EU Tax Package - Impact on Switzerland: 

The EU Tax Package - Impact on Switzerland Machiel Lambooij, tax partner Freshfields Bruckhaus Deringer, Amsterdam Zürich, September 22, 2003

Agenda: 

Agenda Status EU tax harmonisation EU Tax Package Other developments Impact on Switzerland

Status EU Tax Harmonisation: 

Status EU Tax Harmonisation EU legislation: Indirect taxes: VAT, ongoing Mutual assistance: increased interest Direct taxes: not much happened after 1990 until 2003 ECJ: backdoor tax harmonisation Discussion on EU Tax Policy: Tax Package under discussion since 1996, adopted June 2003

Tax Package : 

Tax Package Tax Package (adopted 3 June 2003) includes Savings Tax Directive Interest and Royalty Payments Directive Code of Conduct Related relevant developments Agreement EU-Switzerland Amendment of EU Parent-Subsidiary Directive (29-7-03) Status: still discussion, first on Italian Milk Cows, now on Belgian Coordination Centres

EU Savings Directive: 

EU Savings Directive Purpose: prevent market disruption through tax evasion benefits (bank secrecy) Aim: automatic exchange of information on all cross border payments of interests to EU individuals As long as CH, Liechtenstein, San Marino, Monaco, Andorra, UK and Carribean dependencies not yet apply exchange of information: withholding tax US: now deemed to have equivalent measures, through treaty based exchange of information

Withholding tax: 

Withholding tax Austria, Belgium, Luxembourg & third countries (except US) Rates From 1-1-2005 till 31-12-2007: 15% From 1-1-2008 till 31-12-2010: 20% From 1-1-2011 until full exchange of information: 35% Revenue sharing: 75% to resident state Resident state must credit or refund On top of normal interest withholding tax

Technical details: 

Technical details Identification of beneficial owner required Directive only applies to EU individuals Applies to all interest payments, and certain dividends on UCITS with substantial interest bearing portfolio Requirement to provide information to local tax authorities (who then exchange) or withholding tax (Austria, Belgium, Luxembourg) Paying agent not debtor Grandfathering rules for Eurobonds issued before 1-3-2001 (and additional tranches before 1-3-2002) Compliance nightmare

Agreement with Switzerland : 

Agreement with Switzerland Switzerland agrees to withhold tax in accordance with Savings Directive (withholding tax alternative) unless taxpayer authorises disclosure of payment to tax authorities. Switzerland: Exchange of information on request for all criminal or civil cases of fraud or similar (double test) Extends benefits of Parent/Subsidiary and Interest/Royalties Directives to Switzerland (only withholding tax)

Interest and Royalty Payments Directive: 

Interest and Royalty Payments Directive In force: 1-1-2004 Exemption taxes on cross-border payments of interest and royalties between associated companies within EU Associated: 25% direct shareholding (EU Parent or EU subsidiary) or EU sister; option voting rights Member States have option to apply as from 2 year shareholding Also interest paid by EU branch of EU company to associated (EU) company Burdensome administrative requirements

Code of Conduct: 

Code of Conduct Political agreement to standstill and rollback local tax regimes that are harmful for tax competition Member States to eliminate 66 tax laws giving companies tax breaks to attract foreign investments Benefits to lapse by 31 December 2005; some extensions beyond 2005 agreed. Some regimes also State Aid (Monti): repayment obligation Discussion going on with accessing states: various regimes deemed to be harmful: abolition demanded per 1-5-2004

Proposals to amend Parent-Subsidiary Directive: 

Proposals to amend Parent-Subsidiary Directive Proposal to amend Parent-Subsidiary Directive (29 July 2003) Proposals concern: Application to branch of parent company situated in a different Member State Minimum holding threshold from 25% to 10% Update list of qualifying legal entities Credit for underlying tax: tiers down 5% management cost allocation may now be challenged by tax payer Rules on application to fiscal transparent entities Proposed entry into force: 1-1-2005

Other developments: 

Other developments On going activity by ECJ: de facto harmonisation Accession of new Member States per 1 May 2004 Arbitration convention: still not ratified by all Merger Directive: Italian infringements actioned Various VAT activities

Impact on Switzerland: 

Impact on Switzerland Banking industry: Savings Directive impact on business Swiss businesses general: Parent-Subsidiary Directive and Interest-Royalty Directive provide benefits

EU Taxes: 

EU Taxes L’Europe retrouve son coeur?