The EU Savings Tax Directive. I am out of the international financial services business now. I sold the company management part of my law practice in 1998. So, I am really out of touch. But, a recent gloating post by a ‘tax em or hang em’ guru about the coming Armageddon for
If you want to live in a jurisdiction where you are molly coddled from the cradle to the grave, live in the
So, back in 1999 when the Europeans dreamed up the EU Savings Taxation Directive, we were not too concerned. Its main purpose was to allow the tax authorities in EU Member States and associated territories to share information about interest payments made to individuals. This was to help ensure savers and investors paid the right amount of tax on their savings income and to counter cross-border tax evasion within the EU. It only applied to individuals, not to trusts and other ‘offshore structures’.
The Directive set up two systems. One was an “information exchange” regime, whereby all participating countries agreed to report interest on savings paid to citizens of other EU Member States to those States’ tax authorities. The other was a “withholding tax” regime, whereby the identity of the recipient of interest is not reported, but a small tax (15%) is paid in the offshore centre and the balance remitted to the EU Members State in a lump sum so that the tax authorities are not informed of the individuals who paid. Countries with a tradition of banking secrecy, eg,
Over the years, negotiations between the offshore tax jurisdictions resulted in an agreeable compromise whereby only interest income earned from certain savings and bonds came within the scope of the Directive. Most income remained safely sheltered so long as you used a jurisdiction like
Now, on 13 November 2008, the EU dropped a bombshell. They have amended the Savings Tax Directive. The intention is to close existing loopholes and better prevent tax evasion. The previous Directive only applied to payments to individuals. Anybody who transferred the money they held on deposit into either a company or a trust immediately avoided the disclosure or tax obligation. Some Swiss banks were bulk buying up to 10,000 BVI and Panamanian companies at a time. Interest payments which are channeled through previously tax-exempted structures will now be caught in the net. Companies, IBCs, corporations, limited liability partnerships, foundations, trusts and the like will all come within the scope of the Directive. Innovative financial products, even life insurance, will not escape.
The impact on West Indian offshore centres, including
The other side of the coin is that the high-tax countries who have created this bomb-shell will not gain one penny extra in tax revenue. What is more likely to happen is that, if they implement the Amended Directive as indicated, the investments presently held in Anguilla and the BVI will soon be heading to Hong Kong and