Implementation problems

SUCH A major undertaking as the EU Savings Directive will be no easy task to put into place. With many of the burdens falling on local financial institutions, it should not come as a surprise that the costs will eventually be passed on to the consumer, as is always the case.

Some institutions have simply told existing nonresident customers that they should deposit their money elsewhere. To apply an elaborate information sharing structure for only a handful of depositors does not make much sense.

Implementation of the Directive

Still, other problems will inevitably arise that may be subtle in nature. It is the responsibility of the paying agent of the interest income (such as a bank or financial institution), within the relevant country, to apply the provisions of the Directive, whether that is the exchange of information or the deduction of withholding tax. This, in itself, may present many complications – the greatest of these is the determination of an individual’s tax residence status.

There can be no doubt that this poses the largest burden of the Directive on the paying agents because they will be obliged to keep records of, among other things, an individual’s place of residence. This information is often poorly recorded and can be more complicated to determine than might appear at first glance. Take the example of an individual who may hold a passport for an EU Member State, but reside in a non-EU country or vice versa. Under the guidelines provided for the paying agents, the residence status of the individual may be established on the basis of the address mentioned on the passport, official identity card or on some other documentary proof of identity.

It is the responsibility of the individuals concerned to ensure that paying agents are aware of their tax residence status. As in the example above, where individuals declare themselves to be resident in a jurisdiction other than that detailed on a passport or other official documentation, a certificate must be obtained confirming the jurisdiction of residence from a competent authority in the jurisdiction concerned, and be presented to the paying agent.

Additional complications may arise when, for example, an individual moves during the year. In this instance, there may be more than one country of residence and address for the same period in which savings income arises. The Directive indicates that the relevant country of residence and address are those at the time when the income arose. In the instance where a joint bank account is held by both an EU resident and a non-EU resident, the Directive indicates that the first individual will be liable for the provisions. Unless evidence is provided to the contrary, interest will be allocated equally.

• Dennis Swing Greene is an International Fiscal Consultant for EuroFINESCO S.A., with offices in the Algarve and in Lisbon.Appointments may be scheduled in Guia (Albufeira) telephone 289 561 333 or in Lisbon (Chiado) telephone 213 424 210.