Cross-Border Savings Taxation in the European Union: An Economic Perspective

Abstract

While the literature has paid a lot of attention to the institutional arrangements and practicalities of tax information exchange, the economics has hardly been touched. Many questions arise. Why would source countries (that is, those in which the savings income arises) ever voluntarily exchange tax information with residence countries (in which the saver resides), and so make themselves less attractive to foreign investors? Why is it - as the EU experience has been - that small countries prefer to levy withholding taxes while large countries favor information exchange? Can side payments - that is, the sharing of revenue from taxing cross-border savings - be employed to induce small countries to switch from withholding taxes to information exchange? This article reviews what is known about the answers to these questions, with a view to providing an economic perspective on the savings taxation Directive.

Keywords: Savings tax directive, international tax competition, international tax evasion, information exchange, withholding taxes

JEL Classification: H77, H87, F42