EU takes Luxembourg to court in tax haven dispute

26th June 2009, Comments 0 comments

The EU executive charges that the Grand Duchy uses the ‘so-called non-resident status’ as an excuse to incorrectly apply Europe's Savings Tax Directive on savings interest payments.

Brussels -- The European Commission announced Thursday it was taking Luxembourg to court over its alleged use of "non-domiciled resident" status for tax avoidance.

The EU executive charges that the Grand Duchy uses the "so-called non-resident status" as an excuse to incorrectly apply Europe's Savings Tax Directive on savings interest payments.

"Luxembourg paying agents do not levy withholding tax on interest payments to such beneficial owners," the commission argued in a statement explaining why it is taking the case to the European Court of Justice in Luxembourg.

The move to the courts comes after commission attempts last year and this to get Luxembourg to change the legislation that allows notably British savers to escape paying tax on their capital investments in the country.

"Given that the above Luxembourg tax rules were not amended following the reasoned opinion sent by the commission in November 2008, the commission has decided to refer the case to the European Court of Justice," the statement explained.

The European Savings Tax Directive provides for the exchange of information between EU member states on non-resident savings revenues.

The EU nations not wishing to sign up to the directive -- Austria, Belgium and Luxembourg -- are allowed to tax the income at source.

However Luxembourg manages to get round that obligation as well thanks to the "non-domiciled resident" system, the commission claims.

Luxembourg refuses to apply the directive to those who benefit from "non-domiciled resident" status in their country of residence.

According to Luxembourg legislation, investors are considered to benefit from "non-domiciled" status if they are generally exempt from income tax in their state of residence for tax purposes or if the interest payments, as long as they are not remitted to the home nation, are not subject to tax in that state.

That exoneration allows huge British, Irish and Maltese fortunes to escape taxing at source or back in the home country.

Regularly criticised for its banking secrecy practices, Luxembourg was in April placed on an OECD tax havens "grey list" along with the likes of Bermuda, Monaco and Singapore.

Luxembourg has recently signed a deal allowing the exchange of fiscal information with several countries, including France.

AFP/Expatica

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