The UK Government has repeatedly emphasised the need for greater international co-operation, in parti...
A G7 initiative seeking to improve the supply of information from 'tax havens' was launched in 1998. In addition, the results of a European task force on tax havens headed up by the UK's Dawn Primarolo is due to be published in June 2000.
In February 2000, the Government circulated a paper entitled Exchange of Information And The Draft Directive On Taxation Of Savings. The paper sets out the case for tackling evasion of tax on savings income through exchange of information rather than via the introduction of an EU-wide withholding tax, which is favoured by the majority of EU member states.
Countries resistant to an exchange of information policy include Germany, Luxembourg and Austria.
The UK Government has been under pressure from the London-listed Euro-bond market to resist an EU-wide withholding tax on savings and investments as it would severely damage the competitiveness of London's huge international bond market and drive business to other centres.
However, this resistance by the UK to agree to an EU withholding tax has been a major stumbling block to getting any type of EU tax harmonisation in place.
The move by the UK to introduce an exchange of information policy is now seen as a compromise measure which the UK hopes to persuade the rest of the EU to adopt.
However, in order for the EU to take this seriously, the Government needs to show it can get UK Crown Dependencies such as Jersey, Guernsey and the Isle of Man to agree to such a deal.
There is a lot of political will riding on this, so the UK is likely to push hard on this issue.
While there are those who would argue that striking a deal with the UK Government could be the thin end of the wedge for offshore centres, perhaps now is the time to consider this route seriously.
A lack of co-operation could result in a continued regulatory squeeze on what are already highly regulated and developed offshore centres. The likely effect of this is to reduce the onshore/offshore advantages even further. Investors who do not like this will naturally gravitate to more loosely-regulated centres anyway.
While the same argument applies if an exchange of information policy goes through, either way it now looks like offshore centres have less and less to lose by co-operating.
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