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The EU Savings directive has been implemented into Irish law and requires that details of certain cross-border interest payments made on or after 1 July 2005 are disclosed to the Revenue Commissioners. The legislation potentially impacts on the business of solicitors. This practice note highlights some areas of potential impact, but it is not a comprehensive summary of the legislation. Practitioners should review the legislation and the Revenue guidelines to determine whether they are affected by it.

Council directive 2003/48/EC on taxation on savings income in the form of interest payments was adopted on 3 June 2003. The aim of the directive is to provide for effective taxation of savings income throughout each member state by the exchange of information between member states on interest paid from one member state to individuals resident in other member states. Austria, Belgium and Luxembourg chose to apply a gradually increasing rate of withholding tax instead of exchanging information with other member states.

Each EU member state must implement the directive with effect from 1 July 2005. Ireland implemented the directive into national law as part of the Finance Act, 2004 and the provisions of the directive can now be found in chapter 3A of part 38 of the Taxes Consolidation Act, 1997.

How could the Savings directive impact on Irish solicitors?

If an Irish solicitor has client funds in an account with an Irish bank and interest is accruing on such funds, any payments of such interest by the Irish solicitor to an individual resident in (a) another EU member state, or (b) a dependent/ associated territory of a member state (for example, the Channel Islands or the Isle of Man) together defined as a relevant territory will be reportable under the legislation.

The solicitor will be deemed to be a ‘paying agent’ (within the meaning of the legislation) and will therefore be required to report the payment of such interest to the Revenue Commissioners in addition to reporting the details of the recipient client. The Revenue Commissioners will in turn exchange this information with the tax authorities of the relevant territory in which the recipient client is resident.

Type of information to be exchanged

The legislation requires that paying agents need to report details to the Revenue Commissioners about (i) themselves, (ii) the interest payments they make, including the account number associated with the interest payment or information identifying the asset giving rise to the interest payment (if there is no account number), and (iii) the persons to whom they make those interest payments.

In relation to the information to be reported on the clients receiving the interest payment, there are different obligations imposed on paying agents depending on when contractual relations have been entered into:

a) For contractual relations entered into before 1 January 2004, the name, address and country of residence of the beneficial owner should be reported in accordance with the information already at the disposal of the paying agent. This should correspond to the information already on record under the ‘know your customer’ rules in accordance with the money-laundering provisions

b) For contractual relations entered into on or after 1 January 2004 or as regards a transaction entered into in the absence of contractual relations on or after that date, the name, address, country of residence and tax or other identification number (TIN) should be reported. (If there is no TIN or if the TIN is not available, the date and place of birth of the beneficial owner should be reported.)

The directive also has potential implications for an Irish partnership of solicitors and an Irish sole practitioner holding client funds in a foreign bank account on behalf of an individual resident in a relevant territory.

There may be an obligation in such circumstances for the solicitor or firm receiving an interest payment from the foreign bank to report details of the receipt and for whom it is held to the Revenue Commissioners.

The Revenue Commissioners’ Guidance notes for paying agents on the Irish legislation implementing the Savings directive, which is available on the Revenue , contains more information on the directive and the Irish implementing legislation.