Now that Cayman has agreed to tax directive, EU turns up the heat on Switzerland

Thursday, March 11, 2004

Britain said on Tuesday it had tidied up loose ends with its overseas dependencies to leave the focus squarely on Switzerland to agree a new regime with the EU to clamp down on offshore tax fraud.

The Cayman Islands has now agreed to fall into line with the European Union's demands, a British diplomat said at a meeting of EU finance ministers.

The Crown dependencies of Jersey, Guernsey and the Isle of Man meanwhile have endorsed a "model agreement" which all three can sign to get their tax rules in line with the new EU regime, he said.

"The focus is now entirely on Switzerland," the diplomat said. "The EU's pretty determined about this. It's up to the Swiss."

Pressure is growing as a June deadline approaches for a deal to be struck to allow for a harmonised "directive", or EU law, on taxation of savings to come into force on 1 January next year.

The new EU rules, aimed at closing down hideaways for savings out of reach of the taxman, were agreed last June. But they can only be implemented if an accord on similar rules is reached with third countries including Switzerland.

The EU directive obliges countries to exchange information on savings held by non-residents, so that they can be taxed in their country of origin.
The Swiss government had already come on board the new EU tax rules, despite concerns about the impact on its secret bank accounts.

Under the new savings tax system, EU states Austria, Belgium and Luxembourg have all retained their right to banking secrecy, in exchange for a withholding tax applied at source. Switzerland is banking on a similar arrangement.

But the Bern government is now linking agreement on savings tax with parallel negotiations on the EU's Schengen system of free movement of people, a demand rejected point-blank by the bloc.

"The Swiss are trying to be clever in linking other demands but things like Schengen are completely separate issues," an EU diplomat said.

"Their stand amounts to blackmail. We're not at the stage yet of talking about sanctions. But we've made it clear that if they don't agree to the savings tax deal, there will be serious consequences," he warned.

However, Bermuda will still escape the EU Directive. For an unknown reason, Bermuda was the only British Dependent Territory not included in the list of EU countries and their Dependent Territories when it was published in June last year.

"British Chancellor of the Exchequer, Gordon Brown, is expected to confirm, according to a UK Treasury spokesperson that, as Bermuda is not one of the countries on the list , implementation of the Directive is not therefore conditional on Bermuda making the commitment.

But the spokesperson hinted that Bermuda might be expected at a later date to comply along with other nations. She said: "However the committee made it clear that the ultimate objective was an exchange of information on as wide a basis as possible."

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