Graydon Associates report that, as if the barrage of tax and regulatory initiatives from the likes of the OECD and the FAFT werent enough for the offshore world to contend with in recent times, this year the European Unions own attempt to crack down on tax evasion, the Savings Tax Directive will be implemented in member states and third party jurisdictions on July 1st.
Firstly, it must be remembered that the directive only covers the tax affairs of individuals, not companies. The EU clearly feels that it is harder to track the financial arrangements of individuals as they move their funds from country to country.
So, what information does the directive require to be passed on to the home state of account holders? The minimum amount of information that paying agents (banks and other financial institutions (see definition below) will be required to pass on to the competent authorities of member states will consist of:
Identity and residence of the beneficial owner; name and address of the paying agent; account number of the beneficial owner and interest payment data, including the amount of interest income earned, plus information regarding any proceeds from sale, redemption or refunds. According to the directive, communication of this information shall be automatic and take place at least once a year.
As a result of intense negotiations on the directive finally completed last June, governments were given the option to apply a withholding tax for a transitional period of seven years. The withholding tax rates begin at 15% in July 2005, rising to 20% in 2008, and again to 35% in 2010.
Three member states (Belgium, Luxembourg and Austria) have chosen this safer option, along with all of the European-based offshore jurisdictions, including Andorra, Monaco, Liechtenstein, Jersey, Guernsey, the Isle of Man and Gibraltar. The directive also extends far beyond European shores to the Caribbean dependent territories of the United Kingdom and the Netherlands including Anguilla, Aruba, British Virgin Islands, the Cayman Islands, the Netherlands Antilles and Turks & Caicos, where the new initiative has been greeted with a mixture of dismay and resignation by the offshore world.
Is defined as any economic operator who pays interest to, or secures the payment of interest for, the immediate benefit of the beneficial owner, whether the operator is the debtor of the debt claim which produces the interest or the operator charged by the debtor or the beneficial owner with paying interest or securing the payment of interest.
Debt claims of every kind. This includes income from government securities and income from bonds or debentures, including premiums and prizes attached to such securities, bonds or debentures. This also encompasses accrued and capitalized interest, such as interest accrued on zero-coupon bonds. The definition of interest also includes income derived through indirect investment, through funds of which more than 40% of the assets are invested in debt instruments. Leaving no stone unturned, all payments are assumed to be interest payments if it is unclear what proportion of assets are invested in debt instruments.
The directive will unquestionably have a major impact on the whole financial services industry throughout the EU and in Switzerland, particularly the investment management and banking industries. The key message is that there will be more automatic, direct disclosure of information than ever before.
One of the most popular, proven and secure methods of legally avoiding the implications of the EU tax directive is to place your savings and investments into an established and successful Capital Assurance plan. Unfortunately, in the past, these contracts have been poorly explained and misleading. To see how they work correctly and successfully, contact Graydon & Associates.