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Recognising the adverseeffects that signing the higly controversial
information sharing directive would have on their economies, the...
US & Cayman Say No ToEU
The European Union's controversial information-sharingdirective would be of no benefit to the Cayman Islands, says prominentattorney-at-law Mr. Michael Alberga.
Mr. MichaelAlberga
In an interview with Cayman Net News, hesaid that the European Union (EU) cannot extend any form of fiscallegislation to the Cayman Islands and it is doubtful whether theUnited Kingdom could do so under the present constitution of theCayman Islands.
"If it (EU's information sharing directive)is not in the best interest of America, it certainly cannot bein the best interest of the Cayman Islands," Mr. Albergasaid.
Noting that the implementation cost of thedirective would be exorbitant, Mr. Alberga said the only benefitof this exercise is that the EU would be able to collect taxesand extend sovereignty to the rest of the world.
"That in itself is against all knownprinciples of international law," he said.
Mr. Alberga said it was becoming more apparentthat many of the Organisation for Economic Cooperation and Development(OECD) and Financial Action Task Force (FATF) initiatives wereoriginally aimed at putting mechanisms in place which would allowEU countries to obtain tax information on tax income located outsidetheir territorial boundaries, without any rule of law or privacyprotections being made available to the targets of their tax initiatives.
He added: "OECD countries, of whichmany are members of the EU, control over 80 percent of offshorefinancial services and what is instructive is that a recent studycommissioned by the International Tax and Investment Organisation(ITIO) concluded that many of the initiatives which wee forcedupon the Caribbean jurisdictions offering financial services havenot been implemented by the OECD countries which control the majorityof the offshore financial service business."
Mr. Alberga's sentiments about the EU initiativewere similar to those of Mr. Glenn Hubbard, chairman of the WhiteHouse Council of Economic Advisers, who told a meeting of conservativepolitical groups that the administration would not support theEuropean Union's information-sharing directive.
Under the current plans, agreed on by EUgovernments in December after a long dispute, EU countries willautomatically exchange information on the interest paid to non-residentholders of savings accounts. This would enable each governmentto tax the savings of its own citizens - an approach backed bythe UK, which was staunchly opposed to a previous plan for a EU-wide"withholding tax" on interest from cross-border savings.
However, EU states said they would approvethe plan only if the European Commission could persuade a numberof non-EU countries, such as the US and Switzerland, to adoptsimilar measures. Up to now, the Swiss had been the main stumblingblock to a deal on savings taxation.
According to an article in Tax-News.com,some dependencies have caved in under pressure from the UK Government,but Switzerland has held out in a long-running and acrimonioussquabble with Brussels.
Earlier in the month Taxation Commissioner,Mr. Frits Bolkestein warned that restrictions on investments bySwiss citizens in the European Union could be imposed if the jurisdictionfailed to comply with the EU's demands over information exchange,but, apart from eliciting outrage from the Swiss, this promptedLuxembourg to say that it was opposed to the imposition of sanctionsagainst Switzerland, making the attitude of the US crucial tothe future of the proposals.
"The Commission want to get us to signon in order to badger the Swiss into signing, and get the Swissto sign on to badger us," says Mr. Hubbard.
It was noted that the US Treasury Departmentis non-committal on the issue in public, but its general attitudeis clear enough from proposed new regulations it issued a fewweeks ago under which interest on bank deposits would be reportedto the IRS for nonresident alien individuals who are residentsof certain specified countries, including most EU member states.
The Treasury, according to the article,is no doubt hoping that Congressional elections will shift thelegislature sufficiently far to the left that there will be supportfor the EU's proposals, but if the forces arrayed against information-sharingare as strong as Mr. Hubbard's statement suggests, US PresidentGeorge Bush may choose to use his veto on the issue, somethingthat would mightily upset his buddy Britain's Prime Minister TonyBlair.
In its current shape, there is no chancethat information-sharing proposals could pass the House. BillThomas, Chairman of the House Ways and Means Committee, made thisclear in a letter he wrote to Paul O'Neill in August on the subjectof the Treasury's domestic information-sharing regulation.
Mr. Thomas wrote: "As I expressed onthe floor of the House of Representatives on July 25, 2001, Iam concerned that the proposed regulation could cause significantflight of capital out of the United States. Furthermore, I amconcerned that this significant change in tax policy would hinderour efforts to reform the tax code to promote greater efficiencyand growth. Finally, there are questions as to whether this proposedregulation contradicts Congressional intent."
In an article in the Financial Times, Mr.Hubbard said: "We are not for the European savings initiative."
The Financial Times said these commentsreflected a position hammered out last month by senior US officialsfrom all the leading US economic agencies.
US agreement to participate before the endof the year is seen by the European Commission as vital to thesuccess of the proposal, which is a key part of the EU's plansto create a single financial market. Failure to strike a dealon savings' taxation would be a huge blow for the EU, which saysthe measure would enable governments to fight tax evasion andmoney laundering.
Earlier this month, EU finance ministersasked the commission to draw up a list of sanctions if Switzerlanddid not comply.
Commission officials had said that talkswith the US Treasury had been proceeding well. But Mr Hubbard'scomments suggest the White House is taking a tougher line on theissue.
According to the Financial Times, the USTreasury said no final decision had been made, and that discussionswith the EU were at an early, technical stage. Ms. Tara Bradshaw,a Treasury representative, said the US favoured "appropriatelytailored information exchange relationships" that would helpto enforce tax laws. She added that Mr. Paul O'Neill, Treasurysecretary, "has also made clear that the US has no interestin participating in any effort toward tax harmonisation and thatprotection of the confidentiality of taxpayer information is paramount".
US conservative groups have lobbied theWhite House, charging that the directive is part of a Europe-ledcampaign to force low tax countries such as the US to raise taxeswhile invading the financial privacy of individuals worldwide.