The aim of the tax is to ensure that citizens of one member state do not evade taxation by depositing funds outside the jurisdiction of residence and so distort the single market.
The plan was that non-EU countries would also agree to disclose information about the interest earned by EU residents.
The transitional arrangements involved the payment of a withholding tax whilst bank secrecy remained protected.
Some countries agreed to fully comply with the EU Savings Directive by disclosing the names of their account holders and the interest that they earned.
Bank secrecy laws prevent the disclosure of information about account holders, their assets, and their interest or other income.
The objecting countries achieved agreement from the EC that no further attempt would be made to commence negotiations regarding bank secrecy rules for at least 7 years, in return for which individual account holders could, if they so wished, voluntarily elect to waive bank secrecy and authorise disclosure.
To avoid the withholding tax, certain types of individuals could also prove that they were exempt from taxation in their country of residence.
If the beneficial owner chooses option (2) and authorises the Swiss bank to report the information, he will be only taxed in Greece according to the Greek domestic rate of 10% and the Greek competent authority will have the possibility to check that he has correctly declared the interest payments received from the Swiss bank.
If a Greek beneficial owner has an ordinary bank account (i.e. not a fiduciary deposit) that produced interest income of e.g. EUR 500, he will be subject to 35% anticipatory tax in Switzerland under its domestic law (i.e. NOT under the EU-CH Agreement), i.e. 500*0.35=175.
The EU withholding tax currently applies to the residents of the 27 European Union Member States as shown below: Together with their dates of accession, the 27 current members of the European Union are: The EU withholding tax applies only to bank interest, bond interest, and analogous income, such as income from bond funds, money market funds, loans, and mortgages.
Initial reports as to the amounts of funds raised by the withholding tax suggest that the anti-avoidance measures have not been particularly effective.
Also, the EU withholding tax does not apply to dividends from shares, nor to capital gains and other profits realised on investments.
[citation needed] Thus, for example, a resident of Jersey or of Switzerland, would not pay the tax, even though these countries have signed the agreement with the EU.
A similar status can be accorded to individuals in some other European countries (e.g. Belgium and the Netherlands), because they are only temporarily resident for the purpose of employment.
Certain countries such as Jersey and Switzerland accept that these individuals may be exempt from tax on income earned and retained overseas, and are thus not subject to any retention.
Among the third countries signatories there are also, Anguilla, Cayman Islands, Montserrat and Aruba who have agreed to exchanging information.
Countries that are not EU member states that also maintain bank secrecy:[citation needed] Singapore, Hong Kong, Bermuda and Barbados did not sign any agreement.