Exchange of Information for Tax Purposes

1. S. 283Introduction

1.1. Why Have a Directive on Savings Interest Income?

According to internationally agreed tax standards, notably under Article 11 OECD Model, both the residence state of the recipient of interest and the state where such income is derived retain taxation rights thereon. Nonetheless, the possibility for the source state to levy taxes is restricted to a certain percentage and under the terms of the above-mentioned article it is suggested that it be no more than 10 %, whilst the residence state under either the method article of the OECD Model or unilaterally provides a tax credit for taxes levied at source. In practice, however, it is common to find many tax treaties which fix a different share of source taxation and in some no source taxation is provided for at all. Furthermore, as a matter of fact, the tax rate applied for interest income earned by non-residents by means of a withholding tax hardly ever exceeds 15 %, which is considerably lower than the marginal tax rate that would be applicable to this extra amount of income on account of the progressive tax systems that are generally in place. Therefore, in the absence of a systematic information exchange in respect...