The UK Crown Dependencies could suspend levying a withholding tax on UK residents under the European...
The UK Crown Dependencies could suspend levying a withholding tax on UK residents under the European Union Savings Tax Directive until Gibraltar signs a bilateral agreement with the UK.
This follows the revelation that UK residents with savings in Gibraltar are currently not covered by the directive.
The Crown Dependencies have argued this means that at present there is not a level playing field and, according to industry sources, they have asked the UK Government to clarify when it believes a bilateral agreement with Gibraltar is likely to be signed.
The Crown Dependencies have suspension clauses in their agreements with the UK, which could be activated if the situation is not resolved. Other signatories to the directive, such as Switzerland and the Caribbean jurisdictions, could do the same.
The president of policy and resources in Jersey, Senator Frank Walker, was reported in the local press as saying: "We will still go ahead with the directive in relation to all the other member states of the EU, but the one thing that may not go ahead is the bilateral agreement with the UK.
"It would not affect our agreements with the rest of the EU - this is purely with regards to the UK. Paymaster General of the UK, Dawn Primarolo, fully understands the line we are taking."
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 the Common Market in 1973.
This meant the only bilateral agreement it needed was with the UK. It has been suggested that Gibraltar has objected to having to exchange information with the UK rather than withhold tax.
A joint statement by the Gibraltar and UK governments stated: "The Savings Tax Directive, which came into effect on 1 July, applies to savings income payments made in one member state to someone resident in another member state.
"Accordingly, because the UK and Gibraltar are not separate member states, the directive does not apply between them."
But Gibraltar added that it will implement the directive for UK residents in the next few months and will offer them a choice between a withholding tax and information exchange.
The statement continued: "The UK and Gibraltar 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."
Gibraltar denied it has an advantage over other offshore centres. It argued that information exchange with the other 24 EU member states under the directive was imposed on Gibraltar by the UK, whereas the Crown Dependencies were given a choice.
'Right thing to do'
£69m spent on upgrades
European fintech market 'underserved'