Fiscalité des produits d'épargne - une comparison internationale

Une étude de l'Observatoire de juin 2001 fait le point sur la fiscalité des produits d'épargne en Europe. Cette étude est disponible sur notre site. Les commentaires ci-après se rapportent à ce rapport.

Belgium

Belgian saving rate is close to the European average, nearly 15 % of the gross household income. Capital income is rather 14 % of the gross household income, but most of this income comes from real estate. Transferable savings represent less than 1% of the Belgian gross household income, with nearly one billion of euros in 1998.

The taxation of saving products is mostly based on withholding taxes, called "précomptes", which depend on the kind of saving product, with many exemptions. This income is not supposed to be declared with the income tax. Nevertheless, Belgians may include them to calculate their income tax, if this is more profitable. So, the withholding tax rates are usually maximum rates. Besides, thanks to some savings products, Belgians are eligible to an allowance on income tax. For these reasons, we have to present both tax systems.

a) An overview of the Belgian taxation system

The Belgian government is currently making a tax reform which may suppress the two higher tax levels. Now, the marginal rates of income tax are :

Tab 1 : Marginal rates of income taxation in Belgium

Note : there are several personal allowances for couples and children.

In addition, Belgians pay a local tax (from 0 to 9 % according to the localisation) and a "contribution complémentaire de crise", a 3 % crisis tax which has started decreasing since 2000 and will disappear in 2003. Household is tax exempted if the total income is under 5.205 € (210000 BEF) for a single person, 8.278 € (334 000 BEF) for two persons, and more with children. There is an allowance system for amounts paid to life insurance and pension scheme (see part on these products). Concerning taxation on labour income, tax are mostly pre-paid by employers or organisms which pay the income. It is called "précompte". So, the Belgian tax system is a mix of an income and a withholding tax system. The "précomptes" are deducted from the final income tax. As the income tax, the "précomptes" contain a crisis tax which will be abolished in 2003. A special contribution on transferable saving income has been suppressed in 1995.

Important remark

These marginal rates only apply to incomes that are globalized and declared in the annual tax return of the taxpayer but are not applicable to all income collected by taxpayers. Indeed, some income are taxable by the way of a withholding tax at source which represents the final taxation. So, these incomes don't have to be declared in the annual tax return and are not taxable at the marginal rates unless it's more profitable for taxpayer. Others incomes are taxable at a distinct rate. Such incomes have to be declared in the annual tax return but are not taxable at the marginal rate. With respect to savings products, these incomes are nearly always subject to a withholding tax at source or to a distinct rate. So the marginal tax rates aforementioned are rarely applied to savings products unless these income can be considered as professional ones. b) The Belgian taxation system per products The financial savings strongly increased in the 1990s in Belgium. The total amount of financial investments represent 338 % of the GDP in 1999, i.e. Euros 787 billions. The structure of the Belgian domestic savings shows the increase of institutional investors products, in particular pension schemes or insurance companies, which give tax advantages to householder.

Tab 2 : Household financial saving (1990-1999)

Source : Belgian National Bank and national accounts

Liquidity

Interests of deposit accounts (these accounts must comply with specific conditions provided for by the Royal Decree implementing the Belgian Income Tax Code) are tax free until 1 388 € (56 000BEF). Further, a tax of 15 % (not increased with local tax and "contribution complémentaire de crise") is levied at the moment of the payment of the interests. Should the income be received gross, the taxpayer has to mention them in his annual tax return. The said income will then be taxed separately at a rate equal to the withholding tax rate which is usually applicable to this type of income plus an additional local tax (varying between 0 and 9%). Nominal interest rates on current account is about 0,5 or 2,5 %. For deposit accounts, the rate is from 4 to 6 % according to the duration. Deposit accounts have an increasing bonus (a further rate for increasing deposit) and a fidelity bonus (for durable saving). On account of inflation in Belgium (1,1% in 1999), real rates are close to the monetary market rates.

Dividends and Bonds

The taxation on dividends is based on withholding tax of which the rate varies accordingly to the kind of shares. The common rate of withholding tax is 25% and doesn't have to be increased with local tax and "contribution complémentaire de crise". A first reduced rate of 20% (not increased with local tax and "contribution complémentaire de crise") is granted for dividends produced by AFV-shares (abbreviation of tax advantage in French and Flemish - avantage fiscal / fiscaal voordeel). Several types of shares can benefit from a reduced rate of 15% (not increased with local tax and "contribution complémentaire de crise"): - Dividends produced by AFV-shares listed on stock exchange and distributed since 1/1/1994; - Shares issued since 01/01/1994 by public offer; - Shares that are, since their issue, registered by the issuer or deposited in a Belgian financial organism, when these shares have been issued since 1/1/1994 and correspond to a contribution in cash; - Shares issued by investment funds; - Dividends produced by shares issued by certain little or middle-sized company determined in the law of 10/2/1998 promoting independent firms and under the conditions that natural persons hold at least 50% of the voting rights at the shareholders general meeting of the firm and that this firm is not a member of a group having a coordination center. Finally, the withholding rate is, under conditions, reduced to 0% for dividends distributed by real estate investment funds. Taxation on bonds varies according the date of issue. For interests on bonds issued before 1/3/1990, a withholding tax of 25% (not increased with local tax and "contribution complémentaire de crise") is levied. The withholding tax rate is 15% for interests on bonds issued since 1/3/1990. The first 149 € (6.000 BEF) of interests and dividends are tax free if they are distributed by companies with social objective.

Tab 3 : Withholding on dividends and bonds

Tax rate

Dividends

- Dividends produced by AFV-shares listed on stock exchange and distributed since 1/1/1994; - Shares issued since 01/01/1994 by offer open to the public;

- Shares that are, since their issue, registered by the issuer or deposited in a Belgian financial organism, when these shares have been issued since 1/1/1994 and correspond to a contribution in cash;

- Shares issued by investment funds;

- Dividends paid since 1/7/1997 and produced by shares issued by certain little or middle-sized company determined in the law of 10/2/1998 promoting independent firms and under the conditions that natural persons hold at least 50% of the voting rights at the shareholders general meeting of the firm and that this firm is not a member of a group having a coordination centre: 15%

- Dividends produced by AFV-shares: 20%

- Dividends distributed by real estate investment funds: 0%

- Others dividends (in particular dividends from others countries): 25%

Bonds

Interests on bonds issued since 03/01/1990: 15%

Interests on bonds issued before 03/01/1990: 25%

Source : Mémento fiscal, Ministère des finances belges

Capital gains associated with bonds and share cession

In Belgium, there is no taxation on capital gains (neither deduction on capital losses) when they come from "normal management of a private patrimony". The only case of taxation is for selling shares belonging to a "substantial participation" (more than 25 % hold by one taxpayer and his family till the second degree) in a Belgian companyto a foreign legal entity In this case, the tax rate is 16,5% (increased with local tax and "contribution complémentaire de crise").

The "occasional gains", except those who come from "normal management of a private patrimony", are taxed at 33 % (increased with local tax and "contribution complémentaire de crise). The use of put- and call-options could, under certain conditions, could involve the taxation of the capital gain "occasional gains" taxed at 33% (+ local tax and "contribution complémentaire de crise"). Moreover, a stamp duty is due on transaction concluded or executed in Belgium to the extent that they relate to public funds (sale, transfer, acquisition, …). These stamp duties are only due to the extent that a professional intermediary intervenes in Belgium. These stamp duties are due whatever there is or not a gain realized at the occasion of the transaction.

Tax rate

· Stamp duties relating to share (other than UCITS) investments:

a. Purchase and sale of shares (secondary market): 0.17%

b. Issuance of shares (primary market): 0.35%

· Stamp duties relating to bond investments:

a. Purchase and sale of bonds (secondary market): 0.07%

b. Issuance of bonds (primary market): 0.14%

Life insurance and pensions

In Belgium, since 1993, life insurances and pension schemes have been taxed equally as long-term savings. Such products offer tax reduction on the income tax. Consequently, the capital saved is taxed at the end of the contract. With respect to the present survey, we voluntarily limit us to the tax treatment of individual life insurances and pension savings schemes.

Concerning individual life insurances, in order to benefit from reduction of taxation:

- Insurance premiums have to be paid definitively in Belgium and to be used for constituting a capital,

- The contract has to be subscribed by a tax payer aged under 65 years-old and has to be concluded for a minimal term of 10 years.

- The contract has to insure exclusively the life of the subscriber.

- The beneficiary of the contract has to be the subscriber, in case of life, or, in case of death, his spouse or a relative till second degree (i.e. children, grandchildren, parents, grandparents, brother, sister, nephew or niece).

The amount of the tax reduction is obtained by the multiplication of a part of the savings considered as expenses and a special average rate.

The amount of savings which is taken into account for tax reduction is limited for each married person to 15% of the first bracket of 1.388 € (56.000 BEF) and to 6% for the further. In total, the savings considered as expenses can not exceed 1.661 € (67.000 BEF).

The special average rate is calculated separately for each spouse and is equal to the average rate of the income tax. This special average rate must be in the bracket of 30% and 40%.

When the contract is over, there is a special taxation (called "Tax on long-term savings") on the saved capital if the tax reduction has been applied during the saving period. This special tax is calculated at the date of the 60th birthday of the subscriber on basis of the saved capital (if it's paid at the occasion of the 60th birthday of the subscriber) or on its repurchase value (if it's paid after the 60th birthday of the subscriber).

The tax rate is:

- 10% for capital constituted with premiums paid since 1/1/1993;

- 16,5% for capital constituted with premiums paid until 31/12/1992;

- 33% for capital distributed more than 5 years before the normal end of contract.

When the tax on long-term savings is not levied (for example when the saved capital is paid to the subscriber before his 60th birthday), the income tax is collected on basis of the saved capital.

In this case, the tax rate is:

- 10% (increased with local tax and "contribution complémentaire de crise") for capital constituted with premiums paid since 1/1/1993 and distributed at the normal end of the contract or during the 5 years before the normal end of the contract or at the moment of the death of the subscriber;

- 16,5% (increased with local tax and "contribution complémentaire de crise") for capital constituted with premiums paid until 31/12/1992 and distributed at the normal end of the contract or during the 5 years before the normal end of the contract or at the moment of the death of the subscriber;

- 33% (increased with local tax and "contribution complémentaire de crise") for capital constituted with premiums paid since 1/1/1993 and distributed more than 5 years before the normal end of contract;

- Marginal tax rate (increased with local tax and "contribution complémentaire de crise") for capital constituted with premiums paid until 31/12/1992 and distributed more than 5 years before the normal end of contract.

If the saved capital offer an annuity and not a lump-sum benefits, the tax on long-term savings (above described) is normally collected on the saved capital. If not, the annuity is taxed with the other income to the marginal rate of the householder.

With respect to the pensions savings schemes, in order to benefit from the tax reduction, the contract has to be subscribed by a Belgian resident, aged from 18 to 65 years and for a minimal term of 10 years.

The amount of the tax reduction is obtained by the multiplication of the savings and a special average rate.

The amount of savings which is taken into account for tax reduction is limited for each tax payer to 545 € (22.000 BEF) and the special average rate must be in the bracket of 30% and 40%.

When the contract is over, there is also a tax on long-term savings calculated on basis of the saved capital if the tax reduction has been applied during the saving period. This tax on long-term savings is calculated on basis of the saved capital (if it's paid at the occasion of the 60th birthday of the subscriber) or on its value of repurchase (if it's paid after the 60th birthday of the subscriber).

The tax rate is:

- 10% for capital constituted with premiums paid since 1/1/1993;

- 16,5% for capital constituted with premiums paid until 31/12/1992;

- 33% for capital paid after the 60th birthday of the subscriber but before the 10th birthday of the contract concluded by a subscriber over 55 years.

When the tax on long-term savings is not levied, the income tax is collected on basis of the saved capital.

In this case, the tax rate is:

- 10% (increased with local tax and "contribution complémentaire de crise") for capital constituted with premiums paid since 1/1/1993 and distributed at the normal end of the contract or during the 5 years before the normal end of the contract or at the moment of the death of the subscriber;

- 16,5% (increased with local tax and "contribution complémentaire de crise") for capital constituted with premiums paid until 31/12/1992 and distributed at the normal end of the contract or during the 5 years before the normal end of the contract or at the moment of the death of the subscriber;

- 33% (increased with local tax and "contribution complémentaire de crise") for capital distributed more than 5 years before the retirement of the subscriber or when the contract has been subscribed for a term under 10 years.

Important remark:

When the tax payer has not applied (or is not allowed to apply) a tax reduction during the saving period, neither the special tax on long term savings, nor income tax is levied at the end of the contract.

France

The French taxation system of savings products is both complex, unstable and not very consistent. Over the past ten years, the system has been affected every year by four or five main reforms. For instance, if one focus only on the life insurance taxation regime, 13 important reforms have been launched between 1990 and 1998. There is no global orientation in those reforms, but an accumulation of local adjustments linked to specific issues. The French tax council ("Conseil des impôts") has pointed out this lack of consistency in several reports. Another specific aspect of the French tax system is the extent of the state regulated savings products that are often tax exempted and the low fiscal return of the system as a whole.

a) Main aspects of the French taxation system

The French saving rate is close to the European average (savings are about 7 % of the GDP and 14 % of the gross household income), with a total income from transferable savings products which represent 87 billion of Euro in 1998 (this is the last figure that we have from the French National account). But more than half of this amount is tax free, due to the importance of state regulated savings products (table 1). Moreover, less than 13 % of all the income amount from transferable savings products is effectively taxed under the income taxation system. This figure is quite impressive in a country where the income taxation of savings products is the theoretical norm.

Table 1 - Taxation structure of savings products

To understand this fact, one have to keep in mind three main aspects of the French taxation system. First, income taxation of savings products is a general and theoretical norm but there are many exemption to this norm : state regulated products, of course, but also bonds and obligations (owners have the choice between an income taxation and a withholding taxation) or capital gains (with an income taxation ). In fact, dividends are the only savings products income which is clearly in the income taxation. Second, income taxation for dividends in France is linked with a tax credit system as well as with an allowance system, and the tax table itself is applied to only half of all the households (this explains the two leaks of 2,1 % in table 1). Third, France introduced at the beginning of the nineties a new system of taxes, a mix of social contributions, that complement the income taxation and the withholding standard taxation. Now, there are two stages in the French taxation system : the first one is this withholding social tax, the other one is the income taxation or the withholding standard taxation. Some savings products are free of taxes, others are taxed only with the social contribution, others are taxed with the social contribution and the income tax or the other withholding tax (see scheme 1).

Scheme 1. Spirit of the French taxation system of saving products

State regulated savings products Other savings products - Income taxation or withholding taxation Social contributions

Social contributions has been extended during nineties. At the beginning of the decade, a "Contribution Sociale Généralisée" (CSG) was introduced for most of the earnings and it was extended in 1991to the savings products. The first CSG rate was 1,1 % but has increased in 1993 (2,4 %), 1997 (3,4 %) and 1998 (7,5 %). It became partly deductible of the income tax in 1997 (5,1 % are deductible). At the beginning of 1996, a "Contribution pour le Remboursement de la Dette Sociale" (CRDS) was introduced with a 0,5 % rate. In 1998, a third tax was introduced, called "Prelèvement social de 2 %". The CRDS and the "prelèvement social de 2 %" are not deductible from the income tax. On the whole, these three taxes have introduced a withholding or an income taxation at a rate of10 % (7,5 + 0,5 + 2) which it is applied for most of all savings products incomes .

Second, the standard withholding taxation system has also been largely modified during the nineties. A convergent decreasing of the different rates of taxation has been applied (except for life insurance assets where there was a taxation increasing), leading to a 15 % benchmark rate (i.e. 25 % with social contributions).

The income taxation of savings products has also been reformed during the decade. We will not give a detailed account of all the reforms in this note. Table 2 presents the actual marginal rates of income tax for the six income thresholds of the French system. In this system, 50 % of the savings incomes are earned by taxpayers on the last thresholds (with a marginal rate of 53,25% for the 2000 incomes). The last reform was implemented at the end of 2000 and it will changed all these rates for the 2002 incomes (see table 2.).

Table 2. Marginal rates of income taxation before and after the year 2000 reform

The magnitude of information that circulates between fiscal authorities and banking system is another important feature of the French framework. During the nineties, the legal obligations of the banks have increased. In 2000, about 8000 financial establishment declare every month the withholding contributions of their customers on savings products.

b) The French taxation system per products

In order to analyses savings structure per products, one can adopt a patrimony view and observe the structure of the stock of savings. Table 3 underlines two main features : as mentioned above, French savers owns a huge part of their patrimony in state regulated products (nearly 30,1 % according the French Patrimony Survey, and the computation of the National institute for Statistics, the INSEE); on an other hand, retirement private savings represent a small part of households portfolios (7 %).

Table 3. Structure of savings products in the households patrimony (billions of Euro and %)

Liquidity

The liquidity savings products in France are mainly state regulated and these state regulated products are very liquid. This is why the share of non regulated liquid accounts in all the households liquidity products averages 13,5 % in 1998 (see table 3). The taxation rules of obligations also apply for liquidity. Owners have the choice between an income taxation of their interest (without any allowance) and a withholding taxation at a 15 % rate (25 % with social contributions). In any case, the social contribution is not deductible from income tax. The gross return of the non regulated liquidity is usually closed to monetary market interest rate. This monetary real rate was 2,5 % in 1998, and the real return for the short term deposit was 2,9 % (4,5 % for the 5 year treasury bonds).

Income from state regulated savings product

The state regulated savings product are free of taxes in France, except the housing savings products which pay social contributions ("Compte d'Epargne Logement" and "Plan d'Epargne Logement"). On the whole, they represent more or less a third of savings products stock Table 4. Characteristics of the state regulated savings products : an overview The table 4 list of products is not exhaustive, even if it covers the larger part of this type of specific products. The "livret A" is a monopoly of the "Caisse d'épargne" ("Caisse d'épargne et de prévoyance" and "Caisse nationale d'épargne") and is a very liquid and tractable product. The "Codevi" funds are devoted to the industrial development. To hold a LEP, which is a non liquid product, one must belong to an household with a low income, and to hold a "Livret jeune", one must be under 25. The CEL is more liquid but less lucrative than a PEL.

Dividends

Taxation of dividends differs from taxation of interest or capital gains in France. The principle is to tax dividends with the household's income. The marginal rates given in table 2 are applied but there is a special tax credit, called "avoir fiscal" which is designed to avoid the double taxation mechanism. The amount of this tax credit is theoretically equal to the amount of the taxes on firms profits, before the dividends sharing. The income tax rate is applied on the dividends plus the "avoir", and one have to subtract the "avoir" to give the amount of taxes. There are 5 millions of households in France which benefits of this tax credit.

There is also an allowance system but it is reserved to tax resident owners of French shares. The amount of this allowance is 1 220 Euro per year for a single and 2 440 for a couple. These amounts has not been changed since 1988. The cost for public finance is 3 billions of Euro. In 2000, the allowance is suppressed when the household income is more than 91 225 Euro (for a couple) or 45 612 Euro (for a single). Social contributions are applied on dividends without any allowance or tax credit. This taxes are partly deductible from income tax (5,1 % of the 10 % rate). It is important to noticed also that there is a special public plan for share's owners, called Plan d'Epargne en Action, which is another state regulated savings products. In this plan, the total amount of shares has to be below 91 470 euros for a single and 182 940 for a couple. Then, it is free of taxes, but not of social contribution. The capital gains are taxed at a 32,5 % rate if the shares are owned since less than two years, at a 26 % rate between 2 and 5 years, and they are free of taxes if the shares are owned since more than five years (these figures include the social contribution). In 1998, nearly 3 millions people owned a PEA in France, for a total amount of 43 billions of Euro and an average tax credit of 262 Euros.

Bonds

Bonds owners have the choice between two taxation regime : the income taxation or a withholding taxation. In the income taxation, there is no tax credit and no allowance (it was suppressed in 1986). The withholding taxation is always effective for non resident savers and is often chosen by the richest resident savers. The rate of this withholding tax is 15 %, unchanged since 1995. In any case, the social contributions has to be applied (this gives a marginal tax rate of 25 % under the withholding tax, the social contribution is not deductible in this case).

Capital gains associate with bonds and share cession

The computation of capital gains has to include all the fees and taxes linked to the buying or selling of assets. In France, these capital gains are taxable by inclusion in the personal income tax. The tax rate is 16 % (plus 10 % of social contribution, which are not deductible). But here is a minimal threshold to be taxed, at an amount of 7 622 Euros (50 000 FF). This threshold doesn't differ for shares and bonds and it has strongly decreased in the nineties. If there is no allowance for capital gains, there is some dispensatory regime but they are of little interest in practice.

Life insurance

Before the middle of the nineties, life insurance products were tax free at the beginning of the contract (it reduced the taxable income), it gave tax gains on the return of the contract and no taxation on the transmission of capital at the end of the contract. The first tax exemption has been suppressed in 1997. The second one is now strongly depending of the contract duration. Before 4 years, an exit of a life insurance contract leads to a 35 % withholding tax (including social contribution); between 4 and 8 years, it leads to a 15 % withholding tax; after 8 years, the tax rate is 7,5 %. But there is also an allowance on these taxes (excluding social contribution) which is quite important : 4 573 Euro for a single, 9 146 Euro for a couple. With this allowance, one can sell gradually a life insurance contract without paying any taxes. The third exemption has been also suppressed : the capital at the end of the contract has to be integrated into the inheritance, except if the contractor is more less 70 years old and if the capital is less than 30 490 Euros. Beyond one million Francs (152 500 euros), there is a withholding tax at a 20 % rate. An important exemption to these tax regimes was introduced by the former Minister of Finance, Dominique Strauss-Kahn. If the insurance life contract consist in investment in shares for half of his amount (with at least 5 % of capital assets), the contract becomes free of taxes (except of social contribution). One called this type of contracts, the DSK contracts.

Pension scheme

In France, the role of retirement savings products is played de facto by non retirement savings products, like life insurance contracts or state regulated products (especially "Plan d'Epargne en Action" ou "Plan d'Epargne Populaire"). This could explain why retirement products occupied such a little share of savings products in France. In the private sector, all the regimes collect 1,4 billions of Euro and they are concentrated in big firms and white collar employees. In the public sector, others regimes covers 3 % of the eligible population. For the employers, which are less covered by public retirement regimes, 14 % are covered with pension schemes. There is an employee special scheme, called "Plan d'Epargne Entreprise" which collect 30,5 billions of Euro, but it is a collective scheme and there is no fiscal advantages at the entry in that scheme. On the whole, with 0,7 % of the patrimony stock, the private pension schemes are yet very little developed in France.

Italy

The Italian fiscal system is very complex. Several hundred different taxes, duties, fiscal burdens and formalities pester taxpayers. In the last years, major tax reforms have been announced by the different Governments which followed each other, without significant progress. Italy has a system of direct taxes and indirect taxes. The direct taxes are IRPEF (income tax on individuals), IRPEG (income tax on legal entities) and IRAP (regional tax on productive activities). Direct taxation is currently governed by the Testo Unico (Consolidated Text) which became effective on January 1, 1988 (IRAP became effective on January 1, 1998, according to Law Decree n. 446/97). The Testo Unico has been amended from time to time and modifications are normally introduced annually as part of fiscal budget related legislation.

a). Main aspects of the Italian taxation system

The Italian tax system is an imputation system. Under this system the corporate income profits are fully subject to corporate income tax (36%), and a tax credit of 56.25% of the net dividend is available for the shareholder. In principle, this tax credit would result in a full imputation of the 36% corporate income tax. However, as discussed below, the tax credit results in an imputation of less than 36% due to the levy of a local business income (IRAP), which reduces the net dividend to which the 56.25% tax credit applies.

Income tax

The main form of income taxation in Italy is IRPEF (Imposta sul Reddito delle Persone Fisiche - Tax on personal income), which is a progressive taxation. It takes into account different sources of income as well as family composition. In computing taxation the relevant income is the personal and not the household income, but if a person has dependent spouse or dependent children (or other members of the household) there is a precise amount that can be deducted from the due taxation, according to the number of dependent persons in the household. The total taxable income is given by the sum of employed and self-employed income, real estate income, capital income, miscellaneous income and business income less those expenditures that can be deducted. Capital gain income from financial assets is taxed separately.

Real estate income is any rent received by the person out of owned house, but as well a figurative income coming from any real estate even if the household do not receive any monetary income from it. Figurative income from real estate used as principal dwelling is tax exempt. Then the appropriate rates of taxation are applied to the taxable income. Finally there are the amounts that can be deducted from the resulting tax (or from the taxable basis): those coming from dependent persons in the household, those applied if income comes from compensation of employees or social security pensions, those applied if income comes from self employed income.

In the past years, Italian households suffered from a heavy fiscal pressure in order to bring public finances under control and to respect the Maastricht criteria. The Italian public finances are now getting better and households ask for the reimbursement of a considerable tax bonus. The basic approach consists on a reduction of personal taxation without changing the personal tax structure. The object of this reform is to stimulate household's consumption through an expansionary fiscal package. The income tax measures will be applicable to all persons that receive income subject to IRPEF. All Italian regions are involved. The reform taken in by Law n. 388/2000 and became effective starting from January 1, 2001, contains the following income tax measures:

1) a reduced tax rate for all income brackets and an increase of first income bracket with the lowest tax rate. The following tax rates (2001 fiscal year) have to be increased by the Regional Tax at official rate of 0,9% (for 2001 fiscal year), and by a Municipal tax, at rate not higher than 0,5% depending on the taxpayer's place of residence:

2) Total exemption for the first house income. Before this reform the limit was 1,8 million of lire. Now nobody pays tax on income for the owned house where he lives.

3) An increase in the amount of tax credit for dependent persons in the household for those perceivers whose total taxable income is not greater than 100 millions of lire.

4) An increase in the amount of tax credits for employed and self-employed income. Due to this increase, employed income until 12 millions of lire and self-employed income until 6 millions of lire do not pay taxes.

5) An increase in the amount of tax credits for those persons with low income who pay a rent for the house where they live. The new Italian Government (in force starting from last June) provides for and additional reduction of the tax burden.

b) The Italian taxation system per products

Liquidity/Money market instruments

A 27% tax applies to interest received from bank issued deposit securities.

A 27% tax applies to interest on bank accounts.

A 12.5% tax applies to interest received from the money market instruments.

Bonds (withholding tax)

In principle, interest income is subject to personal income tax. The tax rate varies, depending on the source of income (e.g. interest from bonds: 27% or 12,5% depending on the maturity date of the bonds).

Dividends (withholding tax)

Dividends received by individuals are taxed in the hands of the private individual shareholders as capital income. However, as mentioned above, shareholders are entitled to a tax credit of 56.25% of the net dividend received by the Italian resident Companies. Due to the levy of IRAP, which comes on top of the 36% corporate income tax and which reduces the net dividend by an additional 4.25% applicable on the gross margin, the 56.25% tax credit does not fully impute the underlying 36% corporate income tax. In principle, the tax credit of 56.25% also applies to dividends that originate from profits that have been taxed with the Dual Income Tax rate of 27% (minimum combined rate). There is a difference however, with respect to the refund and carry forward of an excess tax credit.

With effect from July 1, 1998, a final withholding tax on dividends of 12.5% may apply to dividends that are distributed by the Italian resident Companies to private individual portfolio shareholders, in this case no tax credit is available . This regime is optional and only favors shareholders who-as we assume in the following chapters of study are taxed at the top marginal income tax rate of 45%. The benefit for these shareholders is a reduction of the overall tax burden on the dividends of about 1,5%. The final withholding tax of 12.5% is also available for DIT-dividends.

Dividend received by companies are taxed in the hands of the company as business income. However, as mentioned above, companies as shareholders are entitled to a tax credit of 56.25% of the net dividend received by the Italian resident Companies.

Capital gains associate with bonds and shares disposal

Capital gain is considered to be a "miscellaneous income" and is therefore taxed on the same way. Capital gains on portfolio investment shares are 12,5 % taxed. if the shares represent less than 2% of the voting rights (or less than 5% of the outstanding shares) with respect to listed companies, and less than 20% of the voting rights (or less than 25% of the outstanding shares) for non-listed companies. Two specific regimes may be applicable to capital gains on the sale of shares, of which one has a slightly different tax base (same tax rate of 12,5%).

Life insurance (financial products)

Starting from 1.1.2001, premiums cannot benefit from any tax deduction but premiums are no longer subject to insurance tax of 2.5%. For an annuity system as well as in case of a global payment, the difference between the amount received and the total amount of premiums paid is subject to a 12.5% tax directly applied by the insurer Company.

Mutual fund

Proceeds from mutual fund are subject to tax at flat rate of 12.5%. Proceeds from non compliant EEC Directive funds are subject to tax in the hands of the taxpayer at his marginal tax rate.

Luxembourg

The Luxembourg tax system is basically considered to be a classical system. Profits realised by the company are fully subject to corporate income tax, and dividend distributions are not deductible. Double taxation of corporate income tax and personal income tax is mitigated, however, by the exemption method: 50% of the distributed dividends are tax exempt at the level of the shareholder (to the extent that the distributing company is a Luxembourg company fully taxable).

a). Main aspects of the Luxembourg taxation system

1- Luxembourg resident

Taxable income is based on the difference between payments received during a calendar year and expenses necessary to obtain such an income for the same period. A loss in one category of income can generally be offset against other income received in the same calendar year.

The total net income will be further adjusted by standard income tax deduction or, within limits and under conditions, reduced by actual payments for private expenses, so as to determine the taxpayer's taxable income.

Income tax will be determined in 2001 on the basis of a progressive tax rate, ranging from 14% on taxable income in excess of LUF 390,000 for single taxpayer or LUF 780,000 for married taxpayer filing jointly up to 42% on income in excess of LUF 1,356,000 for single taxpayer or LUF 2,712,000 for married taxpayer filing jointly. An additional 2.5% of the tax payable is added as a contribution to the unemployment fund.

Table

Income qualifying as extraordinary income benefit from a favourable income tax rate.

As a general rule, foreign source income that is exempted pursuant to an international double tax treaty is however taken into account in order to determine the effective tax rate to be applied to income.

Resident taxpayers are subject to a 0.5% wealth tax on the worldwide fortune. Wealth tax cannot be deducted from the personal income tax.

Owners of immovable property are subject to a real estate tax on a lump sum value which is far lower than the real value. The tax rate is a combined rate, which for instance for Luxembourg-city ranges from 1.75 % to 7.5%. Real estate tax is deductible from the corporate income tax base.

2- Luxembourg non-resident

As a general rule, Luxembourg non-residents are taxable in Luxembourg only on their Luxembourg source income, subject to provisions of international double tax treaties.

Are notably deemed to be Luxembourg source income dividends and interests from participating bonds when the debtor is either:

· a Luxembourg public entity; or

· a private entity that has its statutory head office or its main establishment in Luxembourg, except for 1929 holding company; or

· an individual, who is resident in Luxembourg. Interests from debts secured by a right, which is opposable to third parties only when registered by the Luxembourg land registrar, are also deemed to be Luxembourg source.

Interests from ordinary debts are never deemed to be Luxembourg source income; as a consequence they are never taxed in Luxembourg in the hands of non-resident investors.

For the purposes of income tax assessment, single Luxembourg non-resident taxpayers earning professional income in Luxembourg fall into the same class as single Luxembourg resident. Married Luxembourg non resident taxpayers who are not separated are put on class 2 (generally the tax class for Luxembourg resident non separated married taxpayers) if they are taxable in Luxembourg on more than 50% of the professional income of their household. Non separated married Luxembourg non-resident taxpayers who do not comply with the above condition are put into the higher intermediary, i.e. tax class 1a.

Non-residents should be subject to Luxembourg wealth tax on their Luxembourg assets only. With regards to financial investments, however, only debts that are saved by a mortgage or real estate located in Luxembourg are deemed to be Luxembourg assets. Moreover, international tax treaties usually reserve the right to tax financial assets to the State of residence of the investor.

b). The Luxembourg taxation system per products

Withholding tax

Luxembourg debtors have to withhold a withholding tax of 25% on the following investment income:

· dividends, founder's share income and similar income, which are paid in consideration for a participation in an entity subject to the corporate income tax;

· interests derived from participating bonds and other similar securities.

As far as non-resident beneficiaries are concerned, double tax treaties concluded by Luxembourg may reduce the withholding tax rate. In addition, the withholding tax is in full discharge of personal income tax liability.

The 25% withholding tax is credited against the personal income tax due by Luxembourg residents.

Personal income tax

Taxpayers who are subject to a filing obligation must report their investment income. Within the scope of personal tax assessment, expenses in connection with the investment income are tax deductible. In any cases, a minimum deduction of LUF 1,000 applies. This minimum deduction is doubled to the benefits of spouses, who are jointly taxed, to the extent that each spouse receives investment income.

In addition, certain exemptions are available, i.e.:

· investment income is tax-exempted up to LUF 60,000 per year. The exempted amount is increased to LUF 120,000 for the benefit of spouses filing jointly.

· 50% of dividends from Luxembourg resident companies fully liable to tax are exempted.

Dependency contribution

Luxembourg residents are subject to a 1% dependency contribution on their net investment income and capital gains. Our comments below focus on tax regime applicable to resident taxpayers.

Liquidity

Incomes from deposits are subject to the progressive income tax scale rates. However, investment income is tax-exempted up to LUF 60,000 per year. The exempted amount is increased to LUF 120,000 for the benefit of spouses filing jointly. A 1% social contribution is also taken upon the net income.

Dividends

Luxembourg companies liable to tax withhold a 25% tax on dividends they distribute.

Should the investor be subject to a filing obligation net dividends would be taken into consideration for the computation of the taxpayers final liability. Within this scope, 50% of dividends from Luxembourg resident companies fully liable to tax are exempted. In addition, investment income is tax-exempted up to LUF 60,000 per year. The exempted amount is increased to LUF 120,000 for the benefit of spouses filing jointly.

Net taxable income is subject to progressive tax rates. The 25% withholding tax is credited against the personal income tax due.

A 1% social contribution is also taken upon the net income.

Bonds

Interest income is generally taxable pursuant to progressive personal income tax rates.

The above-mentioned LUF 60,000 deduction (doubled for married taxpayers filing jointly) is also available for interest from bonds.

A 1% social contribution is also taken upon the net income.

Capital gains associate with bonds and shares cession

A capital gain derived from the sale or the exchange of a financial instrument may be taxed as a speculative profit or as a sale profit, depending on the situation.

Speculative profit

An investor is deemed to make a speculative profit when he sells or exchanges any financial instrument within a six-month period following the acquisition. Capital gains in connection with bonds issued by Luxembourg debtors are, however, tax exempt, except for participating and convertible bonds.

Speculative profits are taxed in accordance to progressive income tax rates.

Sale profit

An investor is deemed to realise a sale profit when he sells or exchanges an important shareholding interest , which has been hold longer than 6 months.

Please note that sale profits benefit from favourable tax rules.

Indeed, the acquisition price, on the basis of which the profit is computed, is re-evaluated, which means the taxable basis will consequently decreases.

Finally, the taxable gain is reduced by a deduction of LUF 2,000,000, which is renewed every 10 years. This deduction is doubled for spouses filing jointly.

In addition, taxable sale profits qualify as extraordinary income, and as such they are taxed at half the average global tax rate (i.e. maximum rate of 21.525%).

Life insurance

A tax deduction of maximum LUF 27,000 per year per person in the household is granted for insurance premiums paid to the extent that the insurance contract is concluded for a period of at least 10 years. Annuities are subject to progressive income tax scale. Capital deriving from life insurance is exempt from personal income tax. Should death benefits be paid, inheritance duties could be due.

Sweden

a) Main aspects of the Swedish taxation system

Saving products in Sweden are taxed by the income tax, which statutes are the Municipal Income Tax and the National Income Tax. Taxable income consists of business income, employment income and income from capital. For individuals business and employment income is subject to both national and municipal income tax. The municipal income tax is levied on the total taxable income less a personal allowance -the average rate is approximately 31%-, and the national income tax is levied at the rate of 20% on taxable income exceeding SEK 252.000 (E 25.454,8) but not exceeding SEK 390.400 (E 40.928,9), and at the rate of 25% on taxable income exceeding that amount. This means that the total income tax on business and employment income is progressive, with three tax brackets. In the first bracket, only municipal tax is levied, in the second and third, brackets the national income tax is also levied. A proportional national income tax is levied on income from capital by way of a flat tax rate of 30%. No municipal tax is levied on this income.

The sum of income from employment and business less general deduction constitutes assessed income. After a personal deduction has been deducted, the resulting taxable income is the base for municipal and national income taxes. The national income tax in 2001 is computed accordingly to the following table:

Table - Taxable income SEK (Euro) Tax rate (%)

The municipal income tax varies among municipalities between 27,95% and 35,21%. The personal allowances modify the taxable income, and are granted as a way of adjusting the tax level on earned income. From the total sum of income of employment and business less general deduction, a personal allowance is made. In 2001 it is SEK 10.000 (E 952) (27% of SEK 36.900 (E 4005,3), the basic amount for 2001). When thetaxable income exceeds 1,86 of the basic amount, the allowance is gradually increased to a maximum of SEK 19.500 (E 1991,7) when the income is SEK 106.400-112.800 (E11.578,3-12.180,2). It then decreases until it is back to SEK 10.000 (E 952) on an income of SEK 206.900 (E 22.478,1).

Expenses incurred for the purpose of acquiring or maintaining a source of income are deductible, and according to that, there is a tax reduction (credit) of 50% of pension insurance premiums paid granted. The credit may be set off against national and municipal income tax and national real estate tax.

Income taxes are primarily collected through prepayment according to the Tax Collection Law. Wages and salaries are subject to a comprehensive withholding system. The withholding tax is calculated according to special tables so that is as close to the final tax as possible. Businesses are required to make advance payments every month. Certain types of income from capital are also subject to a withholding tax of 30% (interest paid by banks to resident individuals and dividends paid by limited companies to individual registered shareholders resident in Sweden).

b) The Swedish taxation system per products

Liquidity

Interest is taxed under the category of income from capital. If the deposit is derived from business activity, the income is taxable as business income. As it has been presented above, income from capital is taxed separately at a flat rate of 30%, no municipal tax is levied on this income, and the withholding rate is the same that the flat rate. There are no specific deductions for obtaining interest, but interest that is paid is deductible for resident taxpayers. If the loan and the interest are located to a business, the interest is deductible when computing business income. All other interest is deductible from income from capital.

Income from state regulated products

There are no special rules for this type of assets, so if the return of the saving product is an income, the same rules exposed for liquidity apply. If the return is obtained as a capital gain, the general rules will be applicable.

Dividends

In general all dividends are taxable as income from capital, at the tax rate of 30%.However, with effect from 1997 a limited tax exemption for dividends has been introduced. The exemption concerns dividends from limited companies that are not listed on a stock exchange. The exemption is limited to an amount equal to 70% of the official interest rate on government loans multiplied by a base for the limited tax exemption (mainly consisting of the acquisition cost of theshares).

The rules governing taxation on business activities are generally the same for both limited companies and business activities carried on by individuals. The tax rates for individuals who carry on business activities are the same as for income from employment. Limited companies, however, pay only 28% of their taxable income.

Dividends from closely held companies could, for a shareholder (who him-/herself or anyone closely related to him/her) that actively works (or has actively worked in a previous 5-year period to a significant degree in the company) be partly taxed as employment income. If the dividend exceeds a certain percentage of a specific base (mainly consisting of the acquisition cost of the shares), the surplus is taxed as income from employment. The percentage is calculated as the interest rate for government borrowing in November preceding the income year plus 5 percentage points (5,06%+5%). The purpose is to prevent this income to be reported as profit of the company and distributed as dividends to the shareholders, since it in reality is income from work. Taxation resulting from this rule is almost the same tax burden as in respect of a salary paid by the company to the shareholder.

Bonds

The return of this asset is considered income from capital.

Capital gains associated with bonds and share cession

The total income from capital is subject to national income tax at a flat rate of 30%. In principle, all types of capital income are fully taxable. The fact that most of these nominal incomes, due to inflation, do not represent real income, is taken into account by the tax rate which is lower than the tax rate on the rest of income. So, there are no special rules for relief from the impact of inflation. All different types of capital income, including capital gains, are added together, and all types of deductible capital costs (included capital losses) are deducted. Depending on the type of asset, a loss may be reduced to 70% of the nominal loss. If the result is a total loss, the loss (after reduction to 70%) may be used toreduce the tax on employment and business income and the real state tax. The reduction allowed is 30% of the loss up to SEK 100.000 (E 10.943,6) and 21% above this sum.

The amount of a capital gain is calculated as the disposal proceeds (less costs for the disposal) minus the acquisition cost of the asset, but there are special rules for the computation of capital gains on the disposal of shares and similar assets. Gains and losses in these cases are computed on an average-cost method. The deductible cost is the average acquisition cost for shares of the same category that the taxpayer owns. For closely held companies where the taxpayer has been active, special rules apply. According to these rules, up to 50% of the capital gain can be taxed as income from employment.

For shares and other securities (excluding options) listed on the stock exchange there is an optional standard rule which allows the acquisition price to be computed as 20% of the sale price.

There are rules for computing gains when claims such as bonds or private claims, nominated in Swedish kronor are sold. The rules mean that the gains and losses are computed on an average-cost method, as explained for shares.

Life insurance

There is no specific treatment for this kind of assets. The law considers special treatment for capital gains derived from immovable property, condominius, shares, claims nominated in SK and foreign currency. Tax treatment for "other assets" (all not mentioned above), are exempt as long as they do not exceed SEK 50.000 (E 5.471,8) per year. Any excess is taxable. Such gains are calculated as 25% of the sales price less cost incidental to the sale, or on the basis of actual net gains, whichever is more favourable. Losses on such assets are not deductible.

Pension scheme

Pension received in respect of prior employment, the various national pensions (including old-age, early retirement, disability and widow's pension) and pensions from private pension insurance are fully taxable as employment income. Annuities based on a sickness or accident insurance are taxed fully or partially depending on the reason of the annuity. Private annuities are taxable if they represent remuneration for work.

Pension insurance premiums of 7% are paid on income up to SEK 304.239 for income year 2001. During the period that pension insurance premiums are paid, only 50% of the pensioninsurance premium is deductible from income. Nevertheless, this limitation is linked to a credit of 50% of the premium.

Pensioners are entitled to specific pension income deductions. The maximum deduction is 151,5% of a basic amount (SEK 36.900 (E 4.005,3)). The deduction is decreased by 65% of the income above the maximum deduction. For taxpayers who only enjoy the state old age pension, the practical effect of this deduction is that the state pension is not taxed.

For an individual with income from employment, the deduction is generally limited to the highest of 5% of the taxpayer's salary up to 20 basic amounts, or half a basic amounts. This means that the deduction is subject to a maximum of one basic amount computed as half basic amount plus 5% on employment income between 10 and 20 basic amounts. For an individual having no pension rights from his employment, the maximum deductible is increased, and computed as half basic amount plus 35% of the employment income, with a maximum of 10 basic amounts. (For an individual with income from a business, the same rule applies, but the 35% calculated on business income). For a person who obtains both, employment and business income, the deductible half a basic amount should be divided between the two categories.

Germany

Germany The structure of the German tax system reflects the constitutional nature of Germany as a federation of states (Länder). The interests of the federation (Bund), the Länder and of the local authorities (Gemeinden) in tax revenue, as well as their duties and obligations to collect it, are all intermingled.

Consistent with the multiplicity of authorities concerned with taxation, Germany levies a multitude of different taxes. There is thus no one single "business tax", but rather, each business is subject to various different taxes dependent upon its legal form and upon the nature of the transactions actually carried out. Together, these taxes culminate in the total burden which a given business has to bear. The total burden actually falling on each business can differ radically depending upon circumstances, and this last remark applies equally to domestic businesses and to the German subsidiaries and branches of foreign corporations or other persons or entities.

a) An overview of the German taxation system

Natural persons are unrestrictedly liable to income tax if their residence or usual place of abode is in Germany. Nationality is irrelevant. Income tax is levied on the seven categories of income, agriculture and forestry, trade or business, self-employment and professional services, employment, income from investments, rentals and leases, and other income. The computation of the taxable income is based on all gross earnings received during a calendar year and reduced by income related expenses for the same period for each of the above categories. There are certain allowances for the different categories of income. Investment income qualifies for a so called "investor's allowance" of DM 3.000 and a global deduction of DM 100 for related expenses. These amounts are doubled in the case of married taxpayers filing jointly.

Full offset of losses from one of the seven basic income categories against positive income from another income category is limited to DM 100,000 per year for a single taxpayer and DM 200,000 per year for married couples filing jointly. In excess of these limits, in general only half of the remaining positive income can be offset by negative income from other categories but subject to further detailed limitations. The total income after deductions in each category represents the adjusted gross income, which may be further reduced by lump sum deductions or, within limits, by actual payments for special expenses, such as insurance payments or extraordinary burdens, to arrive at the taxable income.

The income tax rates are on a raising scale, progressive in the sense that the level of the income determines the rate to be applied to the entire income. Only the highest rate on the scale has the character of a "top marginal rate" in the sense that any further income earned or accrued will be taxed at that rate. In 2000, this highest rate was 51%, but is being progressively reduced under the terms of the tax reform to 42% by 2005. The lowest rate will fall correspondingly to 15%.

The rate structure is summarised in the following table.

For income tax purposes losses not offset in the year in which they occur can be carried back to the previous year up to DM 1 million or alternatively carried forward.

Natural persons who have neither a dwelling nor their permanent abode in Germany are only subject to income tax on certain types of income on German source (limited or restricted liability). In general "limited" taxpayers are subject to special rules for assessment and collection of tax and are charged at a minimum rate of 25%. This 25% minimum income tax is seen to be some as discriminatory under European law.

Additionally to the income tax a solidarity levy has been raised as a surcharge on income tax since 1995 in order to finance the German reunification. This surcharge has remained unchanged since 1998 at 5.5% of the income tax due on assessment or collected by deduction or payment on account.

No net worth tax is imposed on individuals in Germany.

b) The German taxation system per products

Liquidity

Interests from deposit securities are subject to income tax at a maximum rate of 51,14%, corresponding to the upper rate of 48,5 % plus the solidarity surcharge of 5,5 %. Withholding tax of 30% (35% in case of anonymous over-the-counter-transactions) will be levied on the interest income, leading to an overall tax liability of 31,65% resprectively 36,92%.

Interest from deposit securities qualify for the above mentioned investor's allowance.

Income from state regulated savings products

There is no special tax regulation with regard to income from state regulated savings products. For the taxation of this sort of income the rules mentioned under the heading "liquidity" will apply.

Dividend

Until December 31, 2000 the German corporation tax was an integrated tax structure combining a split-rate system and a full tax credit. When a distribution of profits was made, the corporation tax imposed on dividends could be fully credited against the income tax to be paid by the shareholders. This full imputation system will last apply to dividends for 2000 distributed in 2001, meaning that these dividends from domestic corporations received by German residents are still entitled to a full imputation tax credit for the corporation tax paid on distributed profits. The imputation tax credit amounts to 30/70 of the dividend. In order to avoid double taxation for the solidarity surcharge, there will still be a separate imputation system.

On January 1, 2001 Germany introduced a classic system of separate taxing corporations and their shareholders. Under the new system both retained earnings as well as distributed profits will be subject to a definite and final uniform tax rate of 25% at the level of the corporation. Under the new system, only half of the distributed profits of a corporation will be included in the shareholder's personal income tax base. They are subject to taxation at individual progressive rates. This so called "half-income-method" does not distinguish between domestic and foreign dividends. Taken together, a corporation tax charge of 25% and an income tax charge of half of the profit after corporation tax give a tax burden approximately equal to that borne by a natural person with other income.

Dividends from a German company distributed under application of the classic system are subject to a withholding tax of 20%, deducted from the full dividend distributed even though only one-half of the income is to be taken up into the taxable income of a natural person.

The German as well as any foreign withholding tax can be fully credited against the personal tax liability of the domestic shareholder. However, in case of dividends from a foreign corporation, the foreign withholding taxes deducted from the dividend may only be deducted from German income tax, connected to income from the same country in which the distributing corporation is resident.

The "half-income-method" effectively leads to a doubling of the "investor's allowance" as dividends received are only taxable with half of the dividend income.

Capital gains associate with bonds and share cession

Apart from the special case of shares issued in the course of corporate reconstruction, capital gains realised by natural persons on the sale of shares held in German or foreign companies are only taxable where the shareholding could be seen as speculative or where it is ranked as a significant investment.

Gains on the sale of securities are seen as speculative where the sale is no later than one year from the purchase. A taxable gain on the sale of a significant investment is deemed to have arisen when ever the taxpayer sells shares of a company in which he directly or indirectly held 10% (for sales from January 1, 2002 onwards - assuming that the company which issued the shares has a calendar year end - 1%) or more of the issued share capital at any time during the immediately preceeding five years.

The extension of the definition of a "significant" investment from one of 10% to one of 1% will move many individual investments peviously held in the belief that any subsequent sale would be without income tax consequences into the tax net. This also means that previously irrelevant value appreciations within the private sphere will have potentially serious tax consequences in retrospect.

Capital gains from the sale of a domestic significant investment are taxed at the ordinary personal income tax rate if he sale takes place until December 31, 2001. From January 1, 2002 taxable capital gains realised by private individuals from the sale of a "significant" domestic holding will only be charged to taxable income as to one-half in order not to burden natural persons as shareholders with greater tax obligation on the sale of their shares than they would have borne had they taxed the dividends under the "half-income-method",. This also applies to short term gains from speculation. For the sale of a significant or speculative investment in a foreign corporation the "half-income-method" is already applicable from January 1, 2000 onwards.

The change in law will mean that private persons whishing to sell shares from a "significant" domestic investment of at least 10% will be in a more favourable tax position if they can defer the realisation of a capital gain until the advent of the "half-income-method" in 2002.

Capital gains from the sale of shareholdings between corporations will generally be tax exempt from January 1, 2002 onwards. In order to prevent abuse of this exemption by natural persons, various restrictions are imposed respectively will be imposed in the near future.

Life insurance

Contributions are partially deductible as special levy, if the contract period lasts at least 12 years. Any payments after 12 years are basically tax free.

Pension scheme

There are different German old-age pension schemes such as (a) a pay-as-you-earn-system (PAYE), (b) employee pension and (c) personal pension schemes. Any proceeds of these schemes are in the scope of taxation:

(a) PAYE scheme will qualify as "other income". The tax base is the established upon a flat intrinsic yield computation.

(b) Employee pension scheme will qualify as remuneration income being fully taxable

(c) Personal pension schemes have to be analysed on a one-to-one basis.