Explanatory Memorandum to COM(2004)75 - Conclusion of the Agreement with Switzerland providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments and the accompanying Memorandum of Understanding

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By its Decision of 16 October 2001, the Council authorised the Commission to negotiate with Switzerland and five other third countries (United States of America, Andorra, Liechtenstein, Monaco and San Marino) appropriate agreements for securing the adoption by these countries of measures equivalent to those to be applied within the Community to ensure effective taxation of savings income in the form of interest payments. The Commission was to conduct these negotiations in close conjunction with the Presidency of the Council and in close and regular consultation with the High-Level Working Party set up by Coreper Decision of 13 June 2001  i and appointed by the Council as a special committee to assist the Commission in that task.

Following the Decision of 16 October 2001, the Commission wrote to the above third countries asking for negotiations to commence. However, it was only after the ECOFIN Council's approval of a text of the draft Directive on 13 December 2001, that these negotiations could really begin. Despite having adopted its negotiating mandate on taxation of savings income on 30 January 2002, Switzerland initially refused to commence negotiations on this issue until the Council had adopted a series of negotiating mandates in other fields. Following the adoption by the Council of those other mandates on 17 June 2002, formal negotiations with Switzerland on taxation of savings income commenced on 18 June 2002. A large number of meetings at both political and technical level have been held since. In accordance with the Council Decision of 16 October 2001, the Commission conducted these negotiations in close conjunction with the successive Presidencies of the Council. The Commission made regular oral progress reports of these negotiations to the Council and the Parliament and presented a Communication on the negotiations with third countries on taxation of savings income to the ECOFIN Council of 3 December 2002  i.

At the ECOFIN Council's request, negotiations with Switzerland on taxation of savings income continued in 2003. Between January and May 2003 the Commission presented several working drafts of the Agreement to the Council which were examined by the High-Level Working Party. In the course of negotiations, the Swiss side requested the extension to Switzerland of the regimes provided for in Council Directive 90/435/EEC of 23 July 1990  i on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States and in Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States  i. The Commission presented the Swiss request to the Council.

On 3 June 2003, the Council stated that the draft Agreement with Switzerland, as submitted by the Commission on 28 May 2003 constituted the final offer for an Agreement between the EU and this country. The draft approved by Council includes the above Swiss request (Article 15 of the draft Agreement). However, in respect of Spain, the draft provides that Article 15 will only apply from the entry into force of a bilateral agreement between Spain and Switzerland on the exchange of information on request in cases of tax fraud or the like with respect to items of income not subject to this Agreement but covered by a bilateral convention or agreement between the two countries.

In approving the draft Agreement, the Council took the view that the Community does not have exclusive competence to conclude an agreement with Switzerland on the tax treatment of dividends and of interest and royalty payments as mentioned in article 15 of the draft Agreement. Delegations agreed nevertheless, by way of exception and without creating a precedent, that Member States will not exercise their competence in this particular case. The Council and the Commission also declared that the exercise of competence by the Community in respect of article 15 of the Agreement does not affect existing bilateral agreements with other third countries and Member States maintain their competence to conclude bilateral agreements with other third countries on the tax treatment of dividends and of interest and royalty payments between companies.

The Agreement is now being presented to the Council to be concluded. The Agreement is accompanied by an ancillary Memorandum of Understanding (hereinafter MoU) between the Swiss Confederation, the European Community and its Member States, which was also approved in draft form. This MoU inter alia commits Switzerland and Member States to enter into bilateral negotiations with a view to including in their respective double taxation conventions provisions on exchange of information on request for cases falling within the concept of 'tax fraud or the like' with respect to items of income not subject to the Agreement but covered by their respective conventions, and with a view to defining individual categories of cases falling under 'the like' in accordance with the procedure of taxation applied by those countries. In accordance with the ECOFIN Council conclusions of 21 January 2003, the MoU also confirms that, during the transitional period provided for in Council Directive 2003/48/EC of 3 June 2003  i, the European Community will enter into discussions with other important financial centres with a view to promoting the adoption by those jurisdictions of measures equivalent to those to be applied by the Community. Finally, the MoU provides that the agreed measures will be implemented in good faith and that parties will not act unilaterally to undermine this arrangement without due cause. Should any significant difference between the coverage of Council Directive 2003/48/EC and that of the Agreement be discovered, the Contracting Parties will immediately enter into consultations with a view to ensuring that the equivalent nature of the measures provided for in the Agreement is maintained.

The Commission considers that the text is in accordance with the negotiating directives adopted by the Council on 16 October 2001.

In order to enable the Agreement providing for measures equivalent to those laid down in the Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments, and the accompanying Memorandum of Understanding, to be concluded, the Commission proposes that the Council approve the attached proposal for a decision on the conclusion of the Agreement. Article 300  i of the Treaty establishing the European Community stipulates that the Council shall act unanimously when the agreement covers a field for which unanimity is required for the adoption of internal rules. As the internal rules in the field covered by this Agreement have been adopted on the basis of Article 94 of the Treaty, the Commission considers that the Council should act unanimously to approve the proposal for a decision. According to the ECOFIN Council conclusions of 21 January 2003, the Council agrees that the Agreement with the Swiss Confederation should be entered into on the basis of unanimity.