Since its inception in 2005, there have been amendments made to the European Union Tax Directive, namely in the guise of clarity as well as to avoid the preponderance of fraud against the directive, most of which have come in the effort to close existing tax loopholes.
EU Tax Directive Objective
While the European Union lacks taxation power, which can leave some confused as to who exactly is governing this tax, the actions of the tax are real in that it is a withholding tax deducted from interest earned by EU residents on investments they have made in another EU member state, this being done so by the state in which the investment is held.
Evasion of taxation is the impetus of the EU withholding tax’s amendments, particularly toward those EU citizens who deposit funds outside the jurisdiction of residence. Thus, the tax is withheld at the source nation and passed on to the EU country of residence.
Created during the introduction of the European Union Savings Directive (EUSD), with an original aim of the EUSD’s disclosure of interest earned by a resident of a EU country in order to ensure the interest is fully declared in his country of residence, the plan went further in hopes that non-EU countries would also provide interest reports on EU residents. Since then, non-EU countries who have joined the taxation, which ironically were former tax havens, include the Isle of Man, Jersey, Guernsey, Cayman Islands, Andorra, British Virgin Islands, Monaco and Switzerland to name a few.
Europe 2020 Strategy
Known as the "Europe 2020 strategy", EU policy objectives call out for sustainable and inclusive growth in the EU by way of the Single Market Act. This strategy will provide the European Union with a ten-year growth plan that is said will help Europe overcome its overall economic crisis while also addressing the shortcomings of its growth model.
Removing Obstacles for Citizens
As part of the Europe 2020 objective, on December 20, 2010, the European Commission announced plans which ensured tax rules do not cause discouragement in individuals who might benefit from the internal market. Removal of the cross-border tax obstacles for EU citizens consists of an outline of and solutions to the tax problems EU citizens face in cross-border situations, particularly discrimination, double taxation, difficulties in claiming tax refunds and difficulties in obtaining information on foreign tax rules.
These solutions come in accompaniment of other actions designed to thwart tax obstacles and inefficiencies such as the company tax, VAT, excise duties and car taxes.
The EU Commission has long since recognized issues with tax evasion via the savings tax Directive, as well as Directives which provide mutual assistance between tax administrations. To this, the Commission has become more pro-active toward legal action where Member States' national tax rules or practices do not comply with the Treaty.
Research and Development
In effort toward a more effective use of tax incentives, the Commission examined and clarified the legal conditions arising from EU case law by setting out better taxation principles, good practices and guidance for EU citizen members. Member States are encouraged to improve the use and coordination of those tax measures.
In effort to speed up the progress in the tax field, the Commission has instilled use of non-binding approaches such as recommendations instead of legislative proposals. The route of closer cooperation between sub-groups of like-minded Member States has also being explored.
Analysis and Good Governance
The Commission has recently began to publish statistical and economic analysis of EU Member States tax systems to provide Member States with information on taxation trends. This is aligned with good governance in the tax area by way of transparency, exchange of information and fair tax competition.
Removal of Tax Obstacles
Focusing on financial services, the Commission has also removed many of the tax obstacles in accordance with the development and implementation of the Commission's Financial Services Policy. This was done in order to make it easier for investors who reside in EU Member States to claim withholding tax relief on dividends, interest and other securities income received from other Member States.
To the naysayers of the original inception of the EU Tax Directive, improvements have been made up to current day. With the idea that these addendums can promote single market growth and a more stable EU economy in 2020, these changes can only be for the Union’s betterment. However there has been consternation among those with bank accounts in other countries as the European Commission seeks to clamp down on those who continue to evade taxes.
As of January 1, 2015, a new provision relating to automatic exchange of information will go into effect in an ongoing and intensified attempt for the EU to seek out those in member nations who are not paying taxes. In fact, this latest attempt has been ongoing since early 2013, where in addition to rooting out evaders, Euronews reported this past May that the EU plans to assemble a blacklist of tax havens in addition to once again asking the United States and countries in Asia to join in its automatic exchange of information efforts.
--Dave Landry Jr. is a personal finance manager and debt relief counselor who frequently contributes to National Debt Relief to help anyone and everyone in a financially difficult situation, providing guidance on bankruptcy filing and more. Dave hopes you find this article of interest.