the three british isles offshore centres will impose a withholding tax rather than agree to automatic exchange of information
In the latest installment of the European Union (EU) Savings Directive saga, Jersey and the Isle of Man will impose a withholding tax on EU residents' savings held within the islands' financial services institutions. This is the same decision reached by Guernsey two months ago, as an interim measure before automatic exchange of information is required by the EU in the years to come.
Speculation has surrounded which avenue Jersey and the Isle of Man would take with regard to the EU Savings Tax Directive.
Both islands had delayed their response to the last possible moment. There was concern that one of the islands would take a different route ' and opt for automatic exchange of information ' following Guernsey's early decision on the matter.
Such a scenario would have created a rift between the Crown Territories, where historically a united front as well as a healthy competitive spirit has existed.
All three islands will introduce a withholding tax at the same rates as other European states which have selected the same option for a transitional period before automatic exchange of information is imposed. However, Ecofin, the body of EU Economic and Finance Ministers, has not actually stated when the interim withholding tax period actually expires. European nations which have opted for withholding tax include financial centres Luxembourg and Switzerland.
'Jersey's approach to the Tax Package has won us the respect of the financial community both within the island and abroad,' said Senator Frank Walker, president of Jersey's Policy and Resources Committee and Jersey's most senior politician.
'The EU's acceptance of our proposed reforms will offer reassurance to our finance industry and its clients.'
From 2005 to December 2007, EU residents with savings in these locations will incur a 15% tax on interest earnings. Between 2008 and December 2010, this will increase to 20%. Thereafter, it will rise to 35%.
The withholding tax will not apply to non-EU residents, to companies, or almost all trusts. Individuals will be able to opt for exchange of information if that is what they want.
In terms of the EU's overall Code of Conduct measures, Jersey and the Isle of Man intend to phase out over time certain tax measures which the EU considered harmful, and replace them with a non-discriminatory zero rate of tax.
Brussels has agreed the islands' move to a uniform system of corporate tax meets the EU tax package's Code of Conduct on Business Taxation, which seeks the phasing out of special preferential rates for particular types of business.
'For the past three years, the Isle of Man has been delivering a national strategy of driving down income tax costs for business,' said Allan Bell, the Manx Treasury minister.
'Our current standard rate is 10% and we are on course for the zero target by 2006.'
Although the Crown Territories are not part of the EU or subject to EU legislation, they wish to be seen as good neighbours to the EU and are therefore proposing to adopt the measures demanded by these EU directives.
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