The EU are marketing their Savings Tax Directive (also known as ESD) as a clampdown on cross border tax evasion.
However many innocent UK savers and investors will unwittingly be caught in the cross fire and there will be headaches to follow the July 2005 introduction date.
Financial institutions in the low-tax jurisdictions affected by ESD, like Jersey, Guernsey and the Isle of Man for example, are contacting their UK based customers trying to make them aware of the Directive and advise them of any action they should be taking to avoid the taxation or investigative penalties they may inadvertently incur.
The Directive objectives are that financial institutions in the 39 countries involved in the scheme hand over information relating to individuals holding accounts and investments that generate savings income but who are not resident in the country where the account or investment is held. This information is then handed to tax authorities who compare the information received to the information declared by the affected individual.
Trusts, companies and corporate entities are not affected.
Those individuals who earn interest on bonds or from savings certificates and term deposits will likely be affected as will individuals who have simple current bank accounts or savings accounts for example - this list is not exhaustive.
While the Inland Revenue are right in stating that the Directive will have little serious impact on those who legitimately and correctly declare savings income, what about those who are not actually required by law to make such declarations?
Herein lies confusion.
For example, UK residents who are not UK domiciled and who are effectively domiciled ‘offshore’ have no legal requirement to declare income they derive ‘offshore’ but under the rules of the Directive they have to get their hands on what are known as ‘certificates of disclosure.’ Apparently the certificates can either be obtained from the Inland Revenue or the overseas financial institution where the individual has an affected account or investment.
If the affected non UK domiciliary wants to retain their ‘offshore’ account they have to have the correct certification in place before July 2005, to get the certification they have to declare all their overseas assets and depending on whether these individuals have taken the time to ensure that all their assets and overseas accounts are structured properly they could unwittingly give themselves up to ‘unnecessary’ taxation!
Of course all this is also potentially the situation for individuals resident in the other countries affected by the Directive and yet domiciled elsewhere.
And if that scenario wasn’t complicated and worrying enough another dimension is added when you consider that certain countries affected by the EU Savings Tax Directive have decided to go for an automatic taxation option instead of the automatic information disclosure option. Austria, Belgium and Luxembourg have taken this option; Jersey, Guernsey and the Isle of Man may take this option - meaning that those affected with accounts in these countries may incur an automatic withholding tax of up to 35%.
Again, as the Inland Revenue state, those acting legitimately have nothing to fear…but what about those who aren’t affected but haven’t the correct exemption certificates in place? What about those who aren’t affected but who will fall foul of likely system failures, computer crashes and bureaucratic red tape confusion?
The whole situation is confusing to say the least, and worrying even for those who are fairly sure they are unaffected.
But the good news is that there are financial instruments, solutions and structures including trusts, portfolio bonds and the like that will secure the assets of anyone affected, and these solutions are legitimate, legal and recommended by many independent financial advisers (obviously depending on personal circumstances).
Shelter Offshore do not condone tax evasion - we do suggest that everyone gets informed and does everything they can to secure their long term financial health.
For more information download this clearly written free guide from Offshore Investment Guide.com, it offers explanations, information, answers and solutions to the entire confusing Directive! http://www.offshoreinvestmentguide.com/ESD2005/
