Richard Bruton (Dublin North Central, Fine Gael)
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Question 311: To ask the Minister for Finance the impact of the new EU savings directive for declaration and payment of tax; if the Revenue Commissioners have provided a guide on the new requirements for financial institutions and other persons affected; if he is satisfied that peoples' attention has been drawn to the new obligations. [22446/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The EU savings directive was transposed into Irish law by the Finance Act 2004. The purpose of the directive is to ensure that individuals resident in an EU member state who receive savings income from a paying agent in another member state are taxed in the member state in which they are resident for tax purposes. To this end, the directive provides for most EU member states to automatically exchange information on the cross-border payment of interest to individuals resident in another member state.

Three member states — Austria, Belgium and Luxembourg — have chosen not to introduce a reporting system and will impose a withholding tax on such interest payments instead. The directive does not introduce any change to the declaration and payment of tax in Ireland by individuals. However, the information exchanged will enable the tax authorities in the member state in which the recipient is resident to ensure that he or she has declared that income for tax purposes.

The savings tax scheme also extends to ten dependent and associated territories of the UK and the Netherlands, namely, Aruba, Anguilla, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Montserrat, the Netherlands Antilles, and the Turks and Caicos Islands. Moreover, the EU has entered into agreements with Andorra, Liechtenstein, Monaco, San Marino and Switzerland under which these countries will both apply a withholding tax on interest payments to residents of EU member states and will also exchange information on request with EU member states on tax fraud. The legislation applies to payments of interest made on or after 1 July 2005. In order to make the report, Irish paying agents — generally financial institutions and other persons who make interest payments in the course of their business — must establish the identity and residence of their customers who are individuals and report details to the Revenue Commissioners of interest payments made to those individuals who are resident in another EU state. The Revenue Commissioners, in turn, are authorised to forward the information returned to the appropriate member states in which the individuals are resident.

The obligation to collect information on the identity and country of residence of customers in accordance with the rules set out in the directive applied from 1 January 2004. As regards customers where the relationship was established before that date, paying agents must establish the identity and country of residence of such customers using whatever information is in their possession at that time. First reports from paying agents to the Revenue Commissioners are due by 31 March 2006. These reports will cover interest payments made in the period 1 July 2005 to 31 December 2005. Thereafter, the reports will be due annually by 31 March of the year following the year in which the payments are made.

It is expected that most paying agents will make returns electronically via the Revenue on-line system, ROS. To this end, the Revenue Commissioners have developed free software to prepare and manage returns. This software will be available towards the end of July 2005 using the ROS link on the Revenue web site www.revenue.ie. A paper version of the return will also be available for those paying agents who may not have the technological capability to make electronic returns.

I understand that the Revenue Commissioners have been proactive in publicising the new requirements from the outset. Consultations with the financial services industry and other interested parties regarding the implementation of the directive commenced in 2003 and are ongoing. Industry organisations which have been consulted include the Irish Bankers Federation, An Post, the Irish League of Credit Unions, the Central Bank, the National Treasury Management Agency, the Dublin Funds Industry Association, the Incorporated Law Society of Ireland, the Irish Taxation Institute, the Irish Stock Exchange, and the Irish Association of Investment Managers.

Guidelines on the operation of the legislation have been drawn up in consultation with the financial institutions and other organisations mentioned above. The guidelines were circulated and revised as appropriate to take on board industry views and concerns. The first working draft of the savings directive guidelines was drawn up in November 2003 and the guidelines were published on the Revenue website in June 2004. These guidelines will be revised as and when issues arise during the implementation phase.

The Revenue Commissioners have also supplied material on the savings directive for inclusion in the Incorporated Law Society Journal and will shortly be publishing an article in Tax Briefing, a Revenue publication circulated to accountants and other tax professionals. The commissioners will also issue a notice early next year — probably by newspaper advertisement — reminding paying agents of the obligation to submit a return by 31 March 2006.