EC Seeking To Extend Savings Tax Directive To Far Eastern Centres

by Ulrika Lomas, Tax-News.com, Brussels

13 March 2006

The European Commission is seeking to include the booming Asian financial centres of Hong Kong and Singapore within the ambit of the European Savings Directive according to a report by the Wall Street Journal, citing a Commission official.

As originally drafted, the STD aimed at a uniform 'information exchange' regime to apply across the Union, with all countries agreeing to report interest on savings paid to the citizens of other Member States to those States' tax authorities.

Many of the UK's offshore financial centres have been forced to join the STD, along with the Netherlands Antilles, Aruba and some European centres (Andorra, Monaco, Liechtenstein and San Marino and Switzerland), although most of these places have opted for a 'transitional' withholding tax at 15% until 2009 (20% from 2008).

As expected, wealthy investors are finding it easy to circumvent the directive; 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.

Billions of euros in assets have also reportedly flown east in the past year in order to escape the prying eyes of European tax authorities.

However, it would appear that the EC has designs to outmanoeuvre the more tax-savvy investors by broadening existing tax agreements between Hong Kong, Singapore and various EU member states so that Europe could request cooperation and information on potential EU tax evaders when avoidance of European taxes is being probed.

At present, these agreements only extend cooperation to EU countries if it can be shown that domestic tax avoidance in the Far Eastern centres has taken place.

According to the WSJ, the respective governments of Hong Kong and Singapore have not confirmed whether discussions are taking place with EC officials to extend the tax pacts, and spokespersons stated that their governments were already cooperating with European countries under existing agreements.

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