EU Savings Tax Directive Revisited

In the face of huge controversy and much opposition, the EU Savings Tax Directive finally came into force in 2005 – but since then what effects have the implementation of the reporting and taxation changes had on the offshore financial market, have the nations that signed up to the Directive benefited from additional taxation revenue raised and what are the future plans for the development or enhancement of the Directive?

We felt that it was pertinent to revisit the topic of the EU Savings Tax Directive at this time particularly because some of the main jurisdictions to which those affected by the Directive rerouted their funds have now come under the scrutiny of the European Commission.

Leading up to the implementation of the EU Savings Tax Directive 2005 there was plenty of information provided to those in the offshore financial services industry and also disseminated to expatriates, international citizens and those with financial assets held offshore. 

As a result of awareness being raised relating to the fact that it is actually illegal to fail to disclose information about offshore assets and that Andorra, Anguilla, Aruba, Austria, Belgium, British Virgin Islands, Cayman Islands, Channel Islands, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Isle of Man, Italy, Latvia, Lichtenstein, Lithuania, Luxembourg, Malta, Monaco, Montserrat, Netherlands, Netherlands Antilles, Poland, Portugal, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turks and Caicos and the UK all agreed either to withhold tax or share information about those with assets held in one member country but who had residence in another, a number of significant developments have taken place.

Firstly a number of nations netted additional taxation revenue – Switzerland was the clear winner raking in EUR 100 million in additional taxation revenue – but not all nations faired so well with Ireland collecting a measly EUR 400,000 which barely matched the implementation costs of the Directive in Ireland in the first place!

The second significant factor is that of those who were forewarned and forearmed, many refused to give up their right to privacy and instead moved affected assets to other jurisdictions.  Interestingly enough, two of the offshore tax havens to receive significant amounts of rerouted inward investment were Hong Kong and Singapore…and now the European Commission is attempting to exact pressure on these two jurisdictions to comply with the Directive and sign up to become officially part of the EU Savings Tax Directive fold.

Fortunately for those who have chosen either location for the secure banking or investment of their funds, neither Singapore nor Hong Kong are interested in joining the information disclosure club - Singapore is refusing even to discuss the issue and Hong Kong is ‘extremely reluctant’ to assist in any way according to the EU’s envoy to Hong Kong – and so both are considered to be safe from the reaches of the Directive at least for the time being.