Gibraltar hits back at critics

The UK government has promised the Crown Dependencies that residents with savings in Gibraltar will be covered by the EU Savings Tax Directive by the end of this year. This has come as Gibraltar has hit back at criticism from the Channel Islands and Isle of Man over the lack of a bilateral agreement between the Rock and the UK to cover the directive.

Following a meeting between Jersey, Guernsey and the Isle of Man at the end of July, the three islands said: "It was agreed to accept the UK Paymaster General's commitment to conclude arrangements with Gibraltar so as to ensure a level playing field during the period of the UK's presidency of the EU [1 July to 31 December 2005].

"We will be keeping in direct contact with the UK and will monitor progress closely. In view of the firm promises we have received from the Paymaster General, we are assured the gap with Gibraltar will be closed.

"However, we have already made it clear to Dawn Primarolo that it is a point of principle for us that the UK must deliver on its commitment."

This has not stopped Gibraltar from attacking criticism it says has emanated from the Dependencies. Peter Caruana, chief minister of the Gibraltar government, said: "The Dependencies appear to be getting over-excited about this issue. This is not a challenge or a difficult or controversial issue for Gibraltar or its finance centre, which is not orientated to or based on providing tax shelter to UK-resident depositors affected by this directive.

"Gibraltar's finance centre has developed well beyond a dependence on the sort of business that is jeopardised by this directive. We are happy to enter into appropriate exchange of information arrangements with the UK at its request which it has indeed made. Hence, the discussions now taking place and the 1 July joint statement."

The joint statement by the Gibraltar and UK governments stated that because the UK and Gibraltar are not separate member states, the directive does not apply between them. "The governments are in discussion and working together with a view to agreeing arrangements to close this gap between them as soon as possible during the next few months, on terms that would offer a choice between exchange of information and withholding tax."

The Dependencies have raised the possibility they may stop levying 15% withholding tax on savings held by UK residents if this issue is not resolved. While sources in the Dependencies stressed that suspending the tax would be a last resort, it has been raised as a real possibility.

Under the directive, non-EU countries had to negotiate bilateral agreements with all 25 member states. But Gibraltar became part of the EU as an associate member when the UK joined in 1973. This meant the only bilateral agreement it needed was with the UK. The agreement may have been held up by the fact Gibraltar has objected to being forced to exchange information with the UK rather than withhold tax.

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