the completion of the eu tax package will force jurisdictions to show their hands
Jersey and the Isle of Man have been forced to state whether they will impose a withholding tax on EU residents savings held with the islands' financial institutions, or whether they plan to automatically exchange client information with European Union nations.
This decision follows the completion of the much delayed EU Tax Package, which was signed at the EU Economic and Finance Ministers (Ecofin) meeting on Tuesday, 3 June.
The Tax Package consists of two parts ' the Code of Conduct and the Savings Directive.
The Code of Conduct committee, chaired by Dawn Primarolo of the UK Government, identified 66 so called 'harmful' tax measures currently operated by EU member states and their associated and dependent territories. The Code required these tax measures to be removed
With the Savings Directive, EU Member States have agreed to automatic Exchange of Information on (predominantly) interest on savings of EU residents, with the exception of Austria, Belgium and Luxembourg. These locations have been given a concession to introduce a withholding tax instead, for an transitional period.
The Crown Territories, while independent from EU legislation, are under pressure to co-operate with the EU because much of the islands' business is garnered in Europe. In addition, many European firms have operations on the islands.
Last month, Guernsey announced it would commit to the withholding tax option.
'Historically, Guernsey's finance sector has spent a huge amount of time emphasising our reputation for fiscal and legislative separation from the UK and the EU. The choice of a retention tax option is about positioning ourselves as a different kind of finance centre to most EU regimes,' said John Bridle, chief executive of the Guernsey Promotional Agency.
Jersey has so far been unwilling to commit, on the basis that before a decision was made, Ecofin must agree to amend two of Primarolo's harmful tax measures which apply to Jersey. Ecofin has taken on board Jersey's proposed changes, which include extending the timeframe to dismantle its exempt company structure.
By press, it was unclear which position Jersey would most likely take, although the island does appear to be wavering from the exchange of information route, which appeared to be the island's position in March. Then it had stated that Jersey would not introduce automatic exchange of information with other EU Member States unless the EU endorses Jersey's proposals on the Code. The EU has, in fact, endorsed Jersey's proposals.
However, according to Phil Austin, chief executive of Jersey Finance, the government-funded body which promotes the financial sector, the island has not committed itself to exchange of information.
'Jersey has always made clear that its response on the Savings Directive would be dependent on the achievement of a level-playing field,' he said. 'Jersey is now studying the Directive, in consultation with the industry, to determine to what degree a level playing-field has been achieved.'
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