The European Savings Tax Directive, the EU's latest effort to crack down 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.

The Directive, which came into force on 1st July this year, applies to certain types of income from savings if paid to individuals. In most EU countries, such income is reported to the investor's home tax authority, but in Luxembourg, Switzerland, Jersey, Guernsey, the IOM and some other jurisdictions, there is a withholding tax of 15% (20% from 2008).

As expected, wealthy investors have already begun to shift their assets around to circumvent the EU's Savings Tax Directive: in August alone nearly EUR7 billion poured out of Swiss accounts into Luxembourg Sicav II bonds, which are outside the scope of the Directive.

But according to Roman Scott, director of the Boston Consulting Group in Singapore, the EU tax directive could cause EUR1 trillion ($1.2 trillion) to flow out of Luxembourg and Switzerland alone, with a "significant" amount of this finding its way to safe Asian havens like Hong Kong and Singapore.

Scott went on to observe in the IHT that the directive had caused a "psychological shift" in the minds of investors that the European Union was overtly following a zero tolerance approach on the issue of tax avoidance.

However, others argue that, while the savings tax directive is likely to be a contributory factor in the outflow of money from Europe, investors are choosing to put their money into increasingly sophisticated Asian wealth management firms because they are best positioned to profit from the growth opportunities that the region is offering.

"Asia is an excellent investment destination right now, which is the main reason why there is a great deal more interest from European clients," Renato de Guzman, the chief executive of ING Asia Private Bank, was quoted as observing by the IHT.

Assets under management in Asia are set to grow by 21% on average over the next three years, well above a world average growth rate of 13%, according to a survey of chief executives of Asian wealth management firms by business services firm PricewaterhouseCoopers.