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UK And Gibraltar Reach Withholding Tax Deal

by Jason Gorringe, Tax-News.com, London

23 December 2005


It emerged this week that an agreement has been reached between the governments of Gibraltar and the United Kingdom over the Rock's obligations under the EU Savings Tax Directive, which came into force in July of this year.

The jurisdiction had come under fire from the Channel Islands, as its legal status in relation to the UK and European Union meant that the Directive did not apply to it in quite the same way.

However, under the deal announced by the UK's Paymaster General, Dawn Primarolo and Gibraltar's Chief Minister, Peter Caruana this week, Gibraltar and the UK will exchange information about the returns on savings under the Directive, or, in Gibraltar's case only, if the savers so choose, will impose a withholding tax on returns on savings of UK residents with accounts there.

The rate has been set at 15% from April 1 2006 to June 30 2008, following which it will rise to 20% for the next three years, and 35% thereafter.

In a statement released in the summer, responding to the Channel Islands' criticism, the Gibraltar authorities announced that:

"The Government of Gibraltar notes statements in the Channel Islands which refer to a 'last minute problem' and 'an initial difference of views between the UK and Gibraltar' in the implementation of the Taxation of Savings Directives between the UK and Gibraltar and demanding a 'quick resolution to the problem'. There have even been calls for UK to 'force' Gibraltar to comply with the Directive."

"These remarks are based on lack of familiarity with the facts. Gibraltar already is within the ambit of and complies with the Savings Directive. There has been no 'last minute problem', nor any difference of views. Nor, as has been said has 'Gibraltar signed up to the Directive'. The Directive applies, and has always applied to Gibraltar as of right and obligation because Gibraltar is an integral part of the EU. However, as was stated jointly by the Gibraltar Government and the UK Government in a joint press statement issued by them on 1st July 2005, the Directive does not apply as between the UK and Gibraltar because we are not separate member states in relation to each other."

"Nevertheless, as announced jointly on 1 July 2005 the two governments are in discussion to agree appropriate arrangements for exchange of information between them outside of the legal framework of the Directive, which does not apply between them. The two Governments have jointly announced that they are working together with a view to agreeing such arrangements during the next few months. Expectations by ill informed third parties that this should happen by the end of this month are as inappropriate as they are unrealistic."

A comprehensive report in our Intelligence Report series examining offshore confidentiality is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report1.asp

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