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Brussels, 27 November 2008

Direct taxation: Commission takes steps against Luxembourg as regards the application of the Savings Tax Directive

The European Commission has formally requested Luxembourg to amend its legislation which incorrectly transposes certain provisions of the Savings Tax Directive[1]. The request takes the form of a reasoned opinion (second step of the infringement procedure of Article 226 of the EC Treaty). If no satisfactory reaction to the reasoned opinion is received within two months, the Commission may decide to refer the matter to the European Court of Justice.

The reasoned opinion adopted by the Commission concerns the incorrect application by Luxembourg of the Savings Directive 2003/48/EC, adopted in 2003 (The Savings Directive ensures that paying agents (banks, financial institutions ...) either report interest income received by taxpayers resident in other EU Member States or levy a withholding tax on the interest income received.

According to the Commission, Luxembourg cannot provide an exemption from withholding tax in situations other than those expressly provided by article 13 of the Directive (the so-called "voluntary disclosure" procedure which allows the beneficial owner expressly to authorise the paying agent to report information to tax authorities and the certificate procedure which ensures that withholding tax is not levied when the beneficial owner presents to his paying agent a certificate drawn up by his Member State of residence for tax purposes).

However, Luxembourg also gives an exemption from withholding tax to interest payments made to beneficial owners who benefit from the so-called "non-domiciled resident" status in their country of residence. This status is granted by some Member States to residents who are generally exempt from income tax in their State of residence or provided the interest payments, in the absence of a transfer to the State of residence ("remittance"), are not subject to tax in that State.

The Commission is of the opinion that the paying agent has the obligation to establish the residence of the beneficial owner on the basis of minimum standards, as provided by article 3(3) of the Directive. Therefore, if the beneficial owner is a resident of another Member State in accordance with these standards, the Member State of the paying agent must ensure that the latter applies the Directive and, in the case of Luxembourg, that the paying agent levies a withholding tax on interest payments to such a beneficial owner.

Consequently, the Commission considers that Luxembourg's legislation, in its current state, is not compatible with articles 2, 3, 10 and 11 of the Directive.

The Commission's reference number for the case at issue is 2007/2178.

For the press releases issued on infringement procedures in the taxation or customs area see:

For the latest general information on infringement measures against Member States see:

[1] Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments, as amended (OJ L 157, 26.6.2003, p.38)

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