Brussels, 5 July 2007
In 2005, the Grand Duchy of Luxembourg introduced an act which provides for deduction at source of 10% of the interest paid by a paying agent (bank, stock exchange, etc.) established in Luxembourg. This provision does not apply to interest paid by paying agents established in other Member States of the European Union, which is subject to the general rate of (Luxembourg) income tax (Income Tax Act) and is added to the taxpayer's other income, as a result of which the tax rate is usually in fact more than 10%.
According to the Commission, the effect of this provision is to dissuade taxpayers resident in Luxembourg from placing their savings with paying agents established in other Member States. It therefore restricts the freedom of paying agents to establish themselves in another Member State. In addition, it restricts the scope for paying agents established in other Member States to provide their services to taxpayers in Luxembourg.
The reference number of this case is: 2006/4084.
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