Direct taxation: The European Commission refers Luxembourg to the European Court of Justice over its incorrect application of the Savings Tax Directive
European Commission - IP/09/1013 25/06/2009
Brussels, 25 June 2009
The European Commission has decided to refer Luxembourg to the European Court of Justice over its incorrect application of certain provisions of the Savings Tax Directive 1 as regards interest payments made to beneficial owners who benefit from so-called "non-domiciled resident" status in their country of residence .
Luxembourg refuses to apply the Directive to beneficial owners who benefit from the so-called "non-domiciled resident" status in their country of residence. Consequently, Luxembourg paying agents do not levy withholding tax on interest payments to such beneficial owners.
According to Luxembourg legislation, beneficial owners are considered to benefit from the "non-domiciled" status, if they are generally exempt from income tax in their State of residence for tax purposes or if the interest payments, as long as they are not transferred to the State of residence ("remittance"), are not subject to tax in that State.
According to the Commission, Luxembourg cannot provide for 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 the tax authorities of his State of residence 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).
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. 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.
Given that the above Luxembourg tax rules were not amended following the reasoned opinion sent by the Commission in November 2008 ( ), the Commission has decided to refer the case to the European Court of Justice.
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:
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)