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From the EU Savings Directive to the US FATCA, Taxing Cross Border Savings Income

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  • Marcel GERARD

    ()
    (UNIVERSITE CATHOLIQUE DE LOUVAIN and CESifo)

  • Lucia GRANELLI

    ()
    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This paper is motivated by the recent innovations regarding the taxation of cross-border savings that took place in the European Union and the United States. We develop a model to assess the functioning of the different systems of international taxation used on both sides of the Atlantic Ocean. We consider agents as investors able to diversify their portfolio between countries and kinds of financial assets. Furthermore, we show the effects of the various settings investigated not only on the taxation of foreign savings income, but also on the tax rates applied to domestic savings. Finally, comparing the respective merits of diverse regimes of information exchange and coordinated withholding taxation, we explore the consequences of the loopholes in both the EU Savings Directive and the US Qualified Intermediary mechanism, and cope with the cost of information sharing. We find that only three tax designs ensure efficiency: a framework of taxation based on the principle of residence, perfect information exchange for all substitutable assets and strategies, and a system of withholding taxation where the residence country can choose the withholding tax rate and also receives all the withholding tax revenues collected abroad.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2013007.

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Length: 35
Date of creation: 25 Mar 2013
Date of revision:
Handle: RePEc:ctl:louvir:2013007

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Keywords: International Taxation; Taxation of Personal Income; Savings Taxation; European Integration;

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  1. Gerard, Marcel & Hadhri, Moncef, 1994. "The European Tax Game and Welfare," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 211-31.
  2. Thomas Hemmelgarn & Gaëtan J.A. Nicodème, 2009. "Tax-Co-ordination in Europe: Assessing the First Years of the EU-Savings Taxation Directive," CESifo Working Paper Series 2675, CESifo Group Munich.
  3. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-75, December.
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  13. Philippe Cattoir, 2006. "A history of the tax package: The principles and issues underlying the community approach," Taxation Papers 10, Directorate General Taxation and Customs Union, European Commission, revised Dec 2006.
  14. Peter Sørensen, 1994. "From the global income tax to the dual income tax: Recent tax reforms in the Nordic countries," International Tax and Public Finance, Springer, vol. 1(1), pages 57-79, February.
  15. Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, vol. 79(3), pages 651-692, 05.
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