EU Savings Tax Directive 2005 Latest News

With the implementation of the EU Savings Tax Directive just a few months away and many of those affected still ‘waiting and seeing’ and taking no positive action to reduce their exposure to the directive, there’s a combination of good and bad news out this week.

ESD or EUSD as the directive has also become known since its acceptance and adoption in 2003 will affect the cross-border savings income and the right to identity privacy of residents of all EU member states their associated territories and also certain third countries such as Lichtenstein once it is finally integrated by July 1st 2005.

The purpose of the EU Savings Tax Directive is the prevention of tax evasion and the automatic exchange of customer information, and if you have a personal bank account or certain types of investment that generate you ‘savings income’ and these are located in one of the directive countries whilst you are resident in another of the countries then you will be affected.

If you take no action to protect your wealth and privacy before July 1st 2005, or if you are uncertain as to whether you will be affected by the directive and yet do not solicit the services of an independent financial adviser to determine your likely exposure then you are simply not doing the best that you can to protect your privacy and financial security.

As stated, the EU Savings Tax Directive 2005 latest news brings positive and negative information to the whole arena for consideration.  Firstly the bad news...according to a press release issued by one of the main software companies responsible for implementing new systems to deal with the directive, the financial industry are struggling to get the systems in place to handle the new legislation, to identify affected customers, to automatically process and transfer information relating to customers and their financial position and even to identify the particular financial instruments on which interest income must be declared or from which tax should be automatically deducted.

This may mean that corners will be cut and it certainly means that mistakes are more likely to be made.  Of course, on the positive side this may result in some people happily slipping through the net, however, it may also result in non-affected individuals incorrectly losing their right to privacy, having money indirectly deducted at source from their savings and investments or worse still, undergoing complete investigation for taxation evasion. 

Because of the relatively short period between adopting the directive (June 2003) and implementing the directive (July 2005), banks and financial institutions are simply worried that they will not be able to cope and that the implementation will not run smoothly from their point of view.  As a potentially affected customer of one of these financial institutions you should be considering your position and setting aside an amount of time for an independent financial review and to determine which courses of action are open to you for the protection of your on-going privacy and financial health.  If you wait much longer you will have no choice and no control.  Don’t wait until it’s too late the solutions to the directive are not only available, in many cases they actually provide a more flexible and cost effective solution for an individual than that which they already have in place!

On the flip side, news out this week relating to the implementation of the legislation in the Cayman Islands is positive.  While many EU Savings Tax Directive affected offshore financial centres have seen a significant down turn and withdrawal of business the situation in the Cayman Islands has been quite different.  In fact, incorporations in the territory were up some 26% last year!  As a result of pure persistence, clever and constructive negotiation and the backing of some heavy weight countries in the EU arena including the UK, the Cayman Islands have very cleverly protected certain key areas of their offshore business and as a direct result they have protected investors, their privacy and their wealth.

The specific ‘Cayman Legislation’ that’s been agreed upon relates mainly to hedge funds in the territory; about 75% of all the worlds’ hedge fund vehicles are believed to be domiciled in the territory and now about 90% of these vehicles with their paying agents in the territory fall outside the scope of EUSD!  Furthermore, a Cayman based hedge fund with paying agents in the UK or Ireland is also outside the directive, it’s also possible that Cayman Island hedge fund vehicles with paying agents in another of the EUSD affected countries will be outside the directive as well, but it is essential to check this on a case by case basis.

As you can see the EU Savings Tax Directive 2005 latest news highlights an individual’s need to get informed and to position themselves and their savings income outside the scope of the directive.  If you would like assistance in determining your potential liability or advice about the solutions available to you, please visit our offshore advice centre and contact us today before it really is too late.