Eu Savings Agreement
The EU Savings Agreement: Everything You Need to Know
The European Union (EU) Savings Agreement is an international agreement between the EU member states and a number of other countries. Its purpose is to tackle tax evasion by ensuring that information on interest income earned by individuals is shared between countries.
The agreement was initially proposed by the European Commission in 2001 and was adopted in 2003. It has undergone several revisions since then, the most recent being in 2014. Today, it is an essential tool in the fight against tax evasion and provides a framework for cooperation between tax authorities across the globe.
What is the EU Savings Agreement?
The EU Savings Agreement requires banks and other financial institutions to disclose information about individuals who earn interest income in one country but are tax residents in another. Under the agreement, the financial institution deducts a withholding tax on the interest income and shares the information on the account holder with the tax authorities in their country of residence.
The withholding tax rate started at 15% when the agreement was first introduced, but it has since increased to 35% in some countries. This aims to act as a deterrent to tax evasion by making it harder for individuals to hide income in offshore accounts.
Who does it apply to?
The EU Savings Agreement applies to individuals who are tax residents in one country but earn interest income from investments in another country. This could include individuals who live in one country but have a bank account in another, or those who invest in foreign bonds or shares.
The agreement also applies to trusts and other legal entities that are established in one country but have financial assets in another.
Which countries are involved?
The EU Savings Agreement initially applied to all EU member states, plus Switzerland, Liechtenstein, San Marino, Monaco, and Andorra. Over time, the agreement has been extended to include a number of other countries such as the United States and certain British Overseas Territories.
What are the benefits of the EU Savings Agreement?
The primary benefit of the EU Savings Agreement is that it helps to combat tax evasion. By requiring financial institutions to share information on interest income earned by individuals, it makes it harder for people to hide income offshore and avoid paying tax.
The agreement also helps to ensure that taxes are levied fairly. By sharing information between countries, tax authorities can identify individuals who are not paying the correct amount of tax and take action to recover any unpaid tax.
In addition, the EU Savings Agreement promotes transparency and cooperation between tax authorities. It encourages countries to work together to ensure that tax is paid where it is due and reduces the risk of disputes between countries.
Conclusion
The EU Savings Agreement is an important international agreement that helps to combat tax evasion and promote transparency between countries. It requires financial institutions to share information on interest income earned by individuals who are tax residents in a different country. The withholding tax rate incentivizes individuals to pay tax on their income, and the agreement promotes cooperation between tax authorities to ensure that tax is paid where it is due.