Revenue Tax Briefing Issue 63, May 2006
The EU Savings Directive was transposed into Irish law as Chapter 3A, Part 38 TCA 1997. The purpose of the Directive is to ensure that individuals resident in an EU Member State who receive savings income in the form of interest payments from another Member State, are taxed in the Member State in which they are resident for tax purposes.
To this end, payments of interest made on or after 1 July 2005 are either (1) reportable by paying agents in the EU to the tax authorities in the paying agents home territory or (2) subject to withholding tax in those territories which opted to apply withholding tax rather than report the payment. Most of the EU states have opted to exchange information regarding the interest payments made by paying agents in their jurisdiction to individuals resident in another Member State. However, Austria, Belgium and Luxembourg have opted to apply the withholding tax instead of exchanging information. In addition, some associated and dependent territories, namely, Netherlands Antilles, Jersey, Guernsey, Isle of Man, British Virgin Islands and Turks and Caicos Islands and certain third countries, namely, Andorra, Liechtenstein, Monaco, San Marino and Switzerland will also apply a withholding tax. Irish residents, who receive interest payments from those countries and territories named above, may apply to their tax district for a Certificate for Non-Deduction of Withholding Tax if they so wish.
The legislation places certain obligations on paying agents in relation to:
From 1 January 2004 paying agents are required to establish the identity and residence of their customers in order to determine whether or not the individual is reportable under the legislation. A paying agent is defined as a person, established in Ireland, who in the course of its business or profession, makes interest payments to, or secures interest payments for, the immediate benefit of individuals or residual entities. A residual entity is any grouping of individuals (but not companies) e.g. trusts, investment clubs, partnerships etc. A beneficial owner is the person entitled to the interest. Unless an individual can prove conclusively that s/he is not the beneficial owner of the interest s/he is to be regarded as the beneficial owner. The obligations on the paying agent differ depending on whether contractual relations began before or on or after 1 January 2004.
For contractual relations in existence at 1 January 2004 an individual’s identity and residence consists of his/her name, address and country of permanent residence and may be established using the paying agent’s existing records. For contractual relations commencing on or after 1 January 2004, the paying agent is also require to establish a Tax Identification Number (TIN), which is the equivalent of the Irish PPSN, or if this is not available, the date and place of birth of the client.
Payments of interest to a residual entity which is resident in another member state are also covered by the Directive. A residual entity is a person or undertaking who receives an interest payment or secures an interest payment on behalf of a beneficial owner and who is not:
If a paying agent establishes that an entity falls within one of the excluded categories listed above, the paying agent will not need to report the interest, provided that the paying agent has corroborative official evidence that the entity is a company or UCITS etc.
The term interest payment is defined widely and includes:
Paying agents must retain, or be capable of making available, the following information, for a period of 5 years after contractual relations between the paying agent and the customer cease, as respects a transaction carried out on or after 1 January 2004:
Where no contractual relationship exists, the information must be retained or made available for
5 years after the making of the interest payment.
First reports covering the period 1 July 2005 to 31 December 2005 were due by 31 March 2006. Thereafter reports will be due annually by 31 March of the year following the year in which the payments are made and should contain the following details:
It is expected that most returns will be made electronically via the Revenue On-Line System (ROS). ROS have developed free software to prepare and manage returns. The software is available using the ROS link on the Revenue website - www.revenue.ie. However, a paper version of the return will also be available.
The full text of the Directive, the Irish legislation, the guidance notes, the agreements with associated and dependent territories of the UK and the Netherlands, the agreements with certain third countries and the press release are available via the Revenue website - www.revenue.ie