Guernsey Contemplates Cost of EU Savings Tax Directive

by Jason Gorringe, Tax-News.com, London

12 March 2003

As the European powers attempt to finalise their plans on the Savings Tax Directive, Guernsey has begun to assess the costs of compliance with the new regulations calling on banks to share information with other member states.

Whether the island will opt for exchanging information about account holders with other member states, or withholding tax has not yet been decided. At a seminar on the subject hosted by KPMG last month tax partner Jonathon Hooley stressed that the EU directive is a framework for legislation rather than the legislation itself. 'This means that there are likely to be differences in the way in which its provisions are interpreted by individual member states, he explained.

Speaking in late January, Peter Marchant and Peter Rose, heads of the Committee of Guernsey Retail Banks and the Association of Guernsey banks respectively, expressed their support for the withholding tax option with voluntary information exchange, arguing that this course of action would give banking clients the option of choosing for themselves.

However, either option will mean an increased drain on public funds as a result of the extra manpower needed to cope with the additional workload the directive will bring. 'There are definitely going to be more people required but if that means five, 10 or 15, I don't know,' Tax Authority Administrator, Ken Forman told the Guernsey Press and Star.

The Jersey tax department have estimated that an extra 30 people will be needed in their offices when the directive is imlemented. One particular headache the administrators are facing is the determination of the country that account holders are domiciled in for tax purposes. There is currently no information available to the Guernsey tax authorities on this matter.‘We won’t know where their tax domicile is so that is a new piece of information that we will have to maintain for all clients,’ explained Robin Fuller, deputy chairman of the Guernsey International Business Association.

According to the report, Guernsey is set to be a central administrative centre for the new regulations, and will be handling enquiries from other jurisdictions. This places an extra burden on the Island's limited resources. ‘We pride ourselves on being a quality centre, so whichever option is taken, we are going to need people,’ said Mr Forman. ‘We are going to have to do it properly and I am a bit concerned about the effect on this department.’

However, though an agreement by member states on the directive is due to be signed on March 20th, recent last minute demands for concessions by Italy mean there is every chance that the implementation date may be postponed, giving time for adequate preparation.

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