EU Maintains Pressure On Hong Kong Over Tax Agreement

by Ulrika Lomas, Tax-News.com, Brussels

02 November 2006

The European Union is persisting in its attempts to convince Asian financial centres to cooperate on the issue of information-sharing for tax purposes, although the EU's pleas seemingly continue to fall upon deaf ears.

According to a report published in the online edition of London's Financial Times, Thomas Roe, the European Commission's envoy to Hong Kong and Macau, approached the two governments only two weeks after Hong Kong and Singapore refused to discuss the possibility of their inclusion in the EU Savings Tax Directive.

While the EU is very keen to tax the savings and investments that European residents have shifted to Asia to escape the clutches of the directive, the Asian financial hubs are unlikely to want to sign up to anything that would compromise their status as low tax and lightly regulated jurisdictions - a fact that Roe conceded.

"Clearly, if Hong Kong and Macau doesn't want to move forward this is their right," he told the FT.

Last month, EU Commissioner for External Relations and European Neighbourhood Policy, Benita Ferrero-Waldner met with a frosty response from the Singapore government after proposing that the information-sharing could be included in a wider economic Partnership and Co-operation Agreement.

The Savings Tax Directive, which extends to a number of 'third countries' such as Switzerland, the Channel Islands and Caribbean offshore territories facilitates the exchange of information between EU tax authorities on certain types of savings and investments held by EU residents in their territory, so that interest earned can be taxed in the resident investor's home state.

The legislation also allows some jurisdictions to apply a withholding tax, currently 15%, instead of exchanging information.

While opinions in the matter vary, it is generally thought that Hong Kong, Singapore and Dubai have benefited significantly from increased inflows of cash from European investors since the introduction of the directive.

Recommended