Asian Finance Centres Benefit From EU Savings Tax Directive
The EU's latest effort to crackdown on tax evasion among its citizens is thought
to be a major factor behind a substantial increase in money flows to areas where
the directive cannot reach, most notably Asian financial centres, and particularly
Singapore, Hong Kong and Dubai. "We know that some of the banks in the countries with which we have passed
agreements have already flown to Singapore or Hong Kong and created some activities
there. That is very clear," stated the European Commission's head of tax
policy, Michel Aujean, according to Agence France-Presse. According to the Bank of International Settlements, Singapore's total foreign
deposits doubled last year to reach $157 billion. Under the new European legislation, banks throughout the EU (and in Switzerland,
the Channel Islands, Isle of Man and other territories) will be required to
deduct a withholding tax initially at 15% from overseas residents' bank interest
- unless with the depositor's prior consent, they notify the home tax authorities
of the depositor's identity. Aujean conceded however, that the directive is by no means watertight and opportunities
are likely to be found to circumvent the new rules, precluding the need for
investors to seek new, more tax friendly locations to park their money. "It's true that this text and the equivalent agreements (with non-EU members)
will leave room for a certain number of possibilities and the banks are thinking
about ways of using these possibilities," he noted. One of the most obvious 'loopholes', as many describe it, is the fact that
the provisions of the directive apply to individuals, but not to companies or
trusts, and industry watchers believe that many investors and account holders
will simply choose to hold their assets in company form. Moreover, so far, the directive only covers interest income generated from
bank accounts, bond coupon payments and mutual funds holding more than 40% of
their portfolio in debt securities. It leaves other forms of investment income,
such as those from stock dividends and other securities, untouched. The European Union is due to review the performance of the new legislation
in three years time. However, Aujean hinted that changes may come a lot sooner
if it is felt by the EU that the new rules are failing to prevent tax evasion. "I feel we're going to have to be quicker than that," he told reporters
last week. A comprehensive report in our Intelligence Report series examining offshore confidentiality is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report1.asp
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