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Interest Income Tax Evasion, the EU Savings Directive, and Capital Market Effects

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  • Tina Klautke
  • Alfons J. Weichenrieder
  • Alfons Weichenrieder

Abstract

The Savings Directive has been celebrated as a major political break-through in coordinating taxation in Europe. Against this background, the present paper evaluates the real-world effects of this directive. The directive has left a loophole by providing grandfathering (exemption from withholding tax) for some securities. In this paper we compare the pre-tax returns of exempt bonds and comparable taxable bonds. If working around the Savings Directive is difficult for tax evaders in Europe, then investors should be willing to pay a premium for bonds that are exempt from the withholding rate. Conversely, if such a premium is absent, then we may conclude that the supply of existing loopholes (exempt bonds included) is large enough to allow tax evaders to continue evasion at no additional cost. The findings of our study are in line with this latter interpretation.

Suggested Citation

  • Tina Klautke & Alfons J. Weichenrieder & Alfons Weichenrieder, 2008. "Interest Income Tax Evasion, the EU Savings Directive, and Capital Market Effects," CESifo Working Paper Series 2300, CESifo.
    • Handle: RePEc:ces:ceswps:_2300
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    References listed on IDEAS

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    1. Poterba, James M., 1989. "Tax reform and the market for tax-exempt debt," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 537-562, August.
    2. Huizinga, Harry & Nielsen, Soren Bo, 2003. "Withholding taxes or information exchange: the taxation of international interest flows," Journal of Public Economics, Elsevier, vol. 87(1), pages 39-72, January.
    3. Wolfgang Eggert & Martin Kolmar, 2002. "Residence-Based Capital Taxation in a Small Open Economy: Why Information is Voluntarily Exchanged and Why it is Not," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 465-482, August.
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    Cited by:

    1. Konrad, Kai A. & Stolper, Tim B.M., 2016. "Coordination and the fight against tax havens," Journal of International Economics, Elsevier, vol. 103(C), pages 96-107.
    2. Dhammika Dharmapala, 2008. "What problems and opportunities are created by tax havens?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(4), pages 661-679, winter.
    3. Katarzyna Bilicka & Clemens Fuest, 2014. "With which countries do tax havens share information?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 175-197, April.
    4. Thomas Hemmelgarn & Gaëtan J.A. Nicodème & Gaëtan J.A. Nicodeme, 2009. "Tax-Co-ordination in Europe: Assessing the First Years of the EU-Savings Taxation Directive," CESifo Working Paper Series 2675, CESifo.
    5. Johannesen, Niels, 2014. "Tax evasion and Swiss bank deposits," Journal of Public Economics, Elsevier, vol. 111(C), pages 46-62.
    6. Thomas Rixen & Peter Schwarz, 2012. "How Effective is the European Union's Savings Tax Directive? Evidence from Four EU Member States," Journal of Common Market Studies, Wiley Blackwell, vol. 50(1), pages 151-168, January.
    7. Tim B.M. Stolper, 2017. "A Step Change in Tax Transparency? An Event Study on How the Automatic Exchange of Information Did Not Affect Swiss Banks," Working Papers tax-mpg-rps-2017-10, Max Planck Institute for Tax Law and Public Finance.
    8. Rui Pan & Dao‐Zhi Zeng, 2023. "The effects of trade liberalization on tax avoidance," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 898-932, December.

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    More about this item

    Keywords

    Savings Directive; interest taxation; tax capitalization; Austria; Belgium Luxembourg; Liechtenstein;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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