Guernsey May Pull Out Of Savings Tax Directive, Report Suggests

by Jason Gorringe, Tax-News.com, London

22 July 2005

According to a report from the BBC, the Guernsey authorities may consider ending their cooperation with the UK over the European Savings Tax Directive if an anomaly involving Gibraltar is not rectified soon.

It emerged earlier this month that the Directive, which went into effect on July 1, does not currently apply between Gibraltar and the United Kingdom as they are not separate member states of the EU, a revelation which caused outrage in offshore centres such as Jersey and Guernsey.

Following consultation and discussion with the Gibraltar Banker’s Association and the Finance Centre Council, the Gibraltar Government agreed to the issue at the time of the following statement jointly by the Chief Minister of Gibraltar, Peter Caruana, and the UK government's Paymaster General, Dawn Primarolo:

“The Savings Tax Directive, which comes into effect today (July 1), applies to savings income payments made in one Member State to someone resident in another Member State. Accordingly, because the UK and Gibraltar are not separate member states, the Directive does not apply between them. The UK and Gibraltar Governments are in discussion and working together with a view to agreeing arrangements to close this gap between them as soon as possible during the next few months, on terms that would offer a choice between exchange of information and withholding tax."

However, the Channel Islands, both of which agreed to implement information exchange regimes from July 1 in order to satisfy the requirements of the directive, are concerned that Gibraltar will have an unfair competitive advantage in the interim.

According to the BBC, the Guernsey government intends, at a meeting of the Crown dependencies next week, to call on the UK to force Gibraltar into compliance with the Directive as soon as possible.

Speaking to the news service, Guernsey Finance chief executive, Peter Niven revealed, however, that suspending cooperation over the Directive, although an option, would be a last resort for the government.

He explained that:

"All the financial institutions on the island have put into place the Savings Tax Directive and to suspend it would create an awful lot of work. First of all we've been advising them we're going into the directive, then we're advising them we're not going into the directive because of a glitch, and when we do go in we'd have to write to them again."

"It's a bit like the hokey cokey - one moment you're in the next moment you're out."

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