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  3. Primarolo Repeats UK Threat To Cayman Islands Over EU Tax Directive

Primarolo Repeats UK Threat To Cayman Islands Over EU Tax Directive

by Amanda Banks,, London

24 November 2003

Following comments made by UK Chancellor Gordon Brown in September this year, the Paymaster General Dawn Primarolo has repeated the government’s threat to force the Cayman Islands to abide by the terms of the European Savings Directive by means of legislation.

In a letter to the leader of the Cayman Islands Mr McKeeva Bush dated October 31, Primarolo makes the UK government’s position plain in no uncertain terms: "If we consider that we are left with no choice but to legislate, then we will do so," she wrote, according to Caribbean Net News.

If the Caymans are compelled to adopt the directive, it will mean either having to exchange information with EU member states on their residents’ interest income for tax purposes, or a temporary withholding tax before eventually implementing information exchange.

However, the legalities of how, or even if, the directive is to be applied in the overseas territories of member states, notably Britain and the Netherlands, remain somewhat or a grey area.

Although the ECJ's Court of First Instance dismissed the Cayman Islands' application for the formation of a Commission Working Party on the issue 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, according to the ECJ, whether the UK can constitutionally impose the Directive on the Cayman Islands via an Order In Council is something that depends on the legal arrangements between the UK and the Islands, which is outside the ECJ's remit.

However, what is clear is the Cayman government’s opposition to have the European Directive foisted on them from afar and Mr Bush sates he "will not support anything that will destroy our financial services industry."

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