UK Plans New Law To Force EU Directive On Cayman Islands

by Amanda Banks, Tax-News.com, London

16 September 2003

UK Chancellor Gordon Brown has purportedly threatened to adopt new legislation that would compel the Caymans Islands to adopt the regulations of the European Savings Tax Directive when it comes into force in January 2005.

Brown made his announcement whilst attending an informal meeting of European Union finance ministers in Stresa, Italy. There he informed fellow ministers that he has yet to receive notification from the Caribbean jurisdiction of how it intends to implement the provisions of the directive sealed earlier this year.

The legalities of how, or if, the directive is to be applied in the overseas territories of member states, particularly Britain and the Netherlands, have been somewhat vague. Whilst many of Britain's overseas territories have agreed to implement the directive, which requires the sharing of interest income information with the member state in which the investor is resident, the Cayman Islands have been less willing to be dictated to by Whitehall and Brussels, seeking a working party on the issue in the European Court of Justice.

Although the ECJ's Court of First Instance dismissed the Cayman Islands' application for the formation of a Commission Working Party earlier in the year, the ECJ also ruled that the EU cannot impose an obligation on the territory to implement the proposed Directive on the Taxation of Savings Income. In addition, the court ruled that the UK was not legally required as a full member of the EU to impose the directive on the Cayman Islands.

However, the ECJ qualified this, explaining that the question of whether the UK could constitutionally impose the Directive on the Cayman Islands via an Order In Council was something that depended on the legal arrangements between the UK and the Islands, and was outside the ECJ's remit.

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