The Revenue Commissioners will get details of bank accounts held by Irish residents in other EU states under a new law that will enforce widespread sharing of information between the EU's banks and tax authorities.
The Minister for Finance, Mr McCreevy, yesterday signed regulations bringing the EU Directive on Taxation of Savings into Irish law. Under its terms, a resident of one EU state, who earns interest on savings located in another state, will pay tax on that income in his or her home state. Up to now, these earnings have not generally been taxed as the individuals are treated as non-residents.
The law is due to come into force on January 1st, 2005, but financial institutions will have to begin preparing for it next month.
PricewaterhouseCoopers tax partner Mr Jim McDonald last night explained that a key feature of the directive was that it would require the institutions to give information about non-resident account holders to their state's tax authorities.
These, in turn, will pass this on to the authorities in the state where the account-holder pays tax. Currently, it is up to the individual taxpayer to tell the Revenue Commissioners if they have a bank account in another EU state.
"It allows for reporting of interest which is being earned by individuals across EU borders," Mr McDonald said. "If an Irish person has a bank account in France, the bank will give that information to the French authorities, and they will pass it on to the Revenue Commissioners."
They will then collect any tax due on the interest income.
From New Year's Day, any institution providing savings accounts to residents of other EU states will have to establish their identity, addresses, residency and, if possible, tax identification numbers. The directive states that this should be done according to the existing anti-money laundering rules governing this area.
Mr McDonald indicated that the legislation was partly geared at preventing people from evading tax by moving cash across EU borders. Three states, Luxembourg, Belgium and Austria are currently exempt from the reporting requirement. However, from January 1st 2005, banks in those jurisdictions will have to withhold 15 per cent of all interest earned by clients who are living in other EU states.
This will increase to 20 per cent the following year and then to 35 per cent. Mr McDonald explained that anyone subject to this withholding tax will be allowed to write it off against the tax they are paying in their home state. "Anyone resident here can claim a credit for the amount withheld," he said.
Mr McDonald pointed out that this would necessitate declaring full details of the account to the Revenue Commissioners.
He said the withholding provisions were interim measures. The three states involved were willing to be bound by the directive's reporting regime once Switzerland, Monaco, San Marino and the US agreed a similar system with the EU.
