EU Savings Tax Directive: No solution for national taxation of capital income

14 May 2004 – According to the Association of German Banks (BdB), the understanding reached between EU ambassadors and Switzerland on Thursday on the entry into force of the so-called Savings Tax Directive on 1 January 2005 is no solution for the taxation of capital income in Germany. “An exchange of information restricted to cross-border interest payments from which a number of countries remain exempted – possibly indefinitely – by means of an anonymous withholding tax will not lead to the hoped-for EU-wide improvement in tax honesty but only to more bureaucracy”, said Manfred Weber, the BdB’s chief executive officer.

This was particularly true as many types of investments – particularly in shares and investment funds, but also in numerous innovative financial instruments – would not be covered by the Directive in the future either. International investors still had plenty of room for manoeuvre. This is why action was still urgently required to establish a new system of taxing private capital income that stood up to the international competition for investors.

“We need a tax on capital income that is accepted by citizens”, said Mr. Weber. The banking industry together with the rest of the business sector had long proposed a solution in the form of a moderate final tax on interest, dividends and private securities sale transactions. The government had, at the opposition’s urging, undertaken in a declaration on the Act Promoting Tax Honesty to submit a bill to this effect in 2004. “Today the government doesn’t want to know about the undertaking, and the opposition is not calling for it to be honoured”, added Mr Weber.

The understanding now reached on the EU Savings Tax Directive made it all the more pressing to tackle the long overdue reorganisation of taxation of private capital income in Germany. “Both the government and the opposition need to act, as there is still the chance for German legislators to introduce a final tax, thus establishing clarity in this area once and for all and giving investors a reliable perspective. Most of our EU neighbours have long since done so. If no action is taken, it is to be feared that the treatment of past tax avoidance adopted in the Act Promoting Tax Honesty will also come to nothing”, said Mr. Weber.