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EU Savings Directive: reset of timeline to reach agreement

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As previously reported, the European Commission has long been trying to deliver revisions to the Savings Directive (EUSD) and had been working to meet the end of year deadline set at the European Council May 2013 meeting. However, the absence of approval of the proposals at the European Council meeting on 19 and 20 December mean that this deadline will not be met. This failure to agree came hot on the heels of the rejections at the ECOFIN meetings on 15 November and 10 December.

The primary reason for the failure to achieve unanimity is the concern raised by Luxembourg that, without the conclusion of negotiations with the European third-countries (Switzerland, Andorra, Monaco, Liechtenstein and San Marino) to apply similar standards, the proposals would potentially lead to capital flight.

The European Council has now reset the timeline and the published outcomes from the meeting suggest that ‘the revised Directive on the taxation of savings income will be adopted by March 2014’, tempered somewhat by a request that the European Commission speed up negotiations with the third-countries and report back to the Council at its March meeting.

This again demonstrates the intense political pressure and will to resolve this issue and as such these proposals remain alive. Given this, the European Commission will no doubt welcome the news that the Swiss Federal Council agreed on 18 December to adopt the mandate for negotiations to the EUSD with the European Union, as this reduces some of the pressure to progress the negotiations.

However, the question still remains as to whether sufficient work to satisfy the concerns expressed by Luxembourg can be completed by March 2014.

It still seems likely that the revisions to the EUSD will be agreed and the question is therefore more ‘when’ rather than ‘if’. The concern that a number of automatic exchange of information initiatives exist (and have different paths) remains. The wider financial industry will need to comply with any revised EUSD and reporting regimes such as FATCA (and all the various derivations, whether the UK initiatives with the Crown dependencies and overseas territories or the OECD’s plans for a global standard) and will be anxious to see some form of convergence. This is missing in the plans for EUSD, although the European Council conclusions did note and welcome the work being performed in this area by the OECD and other international fora. As such, there is hope that this work will eventually bring true standardisation.