Jersey And Switzerland In The Information-Sharing Firing Line

by Ulrika Lomas, Tax-News.com, Brussels

15 April 2002

With just eight months to go before the EU's self-imposed deadline for agreement on the terms of an information-sharing regime for the taxation of savings interest, politicians are becoming nervous about the Union's failure to persuade major external financial centres to sign up to the proposed system, which would require banks to report interest payments to non-nationals to their home tax authorities.

The EU's Directive, laboriously agreed after years of wrangling, was made dependent on the adherence of non-members such as Switzerland and the US, and also assumed that member states' dependent territories such as Gibraltar and Jersey, in the UK's case, would apply the same rules.

That comfortable assumption never seemed sustainable to external observers, and negotiations between the UK and its rebellious offshore territories are now reaching crisis point. The UK government yesterday accused Jersey of 'wrecking' the Directive, and of putting London's international bond market at risk by failing to move swiftly to improve transparency.

The UK was largely instrumental in establishing information-sharing as an alternative to the direct imposition of a withholding tax, which was seen as damaging for the City's financial markets.

Dawn Primarolo, the UK's junior finance minister, made no progress in the latest round of talks with Jersey politicians and Gordon Brown, finance minister, is said to be angry that Jersey's intransigence could allow other non-EU countries to evade signing information agreements.

A Treasury insider said: "Our patience with Jersey has snapped. Because of the intransigent position Jersey is taking ...the whole debate about the withholding tax could be reopened. We are not prepared to put at risk the interests of the City of London. We went through tortuous negotiation in the EU to reach a deal which prevented a withholding tax being imposed on the City. We are not prepared to see that package unravel."

The Treasury is now considering the options it has to force Jersey into line; but the island is in good standing with the OECD, the FATF and the US, so that unilateral sanctions by the UK don't seem likely, and Jersey's ultimate weapon - independence - always rears up in the background of any spat with the mainland.

Meanwhile, in nearby Brussels, president of the European Commission Romano Prodi has said that Switzerland should give up its banking secrecy to prevent money laundering. In an interview with the Sunday newspaper "NZZ am Sonntag", Prodi said current banking secrecy laws were "outdated" and protected "money stemming from unknown sources, which could include dirty funds".

Prodi added that Switzerland should abstain from joining the European Union (EU) if it considers banking secrecy as essential. "If Switzerland does not want to join the EU because of the importance it attributes to banking secrecy, then I think that country should not join the union," Prodi said.

"I consider banking secrecy as an instrument, and not a fundamental value such as Switzerland's neutrality," Prodi added. "While values cannot be changed, it is possible to get rid of an ill-fitting instrument."

However, the powerful Swiss Bankers Association and leading Swiss politicians have been unanimous in arguing that banking customer confidentiality, which is anchored in Swiss legislation, is not negotiable. Switzerland points to its own high withholding tax, which it has offered to extend to mollify the EU, and to a range of mutual assistance treaties. Moreover, funds of criminal origin are not protected by Swiss bank customer confidentiality.

Recommended