Jersey to end banking secrecy for EU residents

By Gavin Scott

Jersey is to drop the withholding tax (“retention tax”) option under the EU Savings Tax Directive. It will be mandatory for financial institutions to automatically exchange information on their clients’ bank accounts, effectively bringing the era of banking secrecy to an end in the offshore centre.

The Council of Ministers announced in August that it will formally request the States of Jersey to implement compulsory automatic exchange information for EU savings tax agreements. The Council will bring legislation to the States as soon as possible to effect the change.

The official start date will be January 1 2015, though financial institutions will be allowed to start earlier if they wish to harmonise operations with those in Guernsey and Isle of Man.

The Savings Tax Directive came into force in July 2005. It was established to ensure that everyone living in the EU pays tax on their interest earnings to their country of residence regardless of whether they declare the income or not, thus ending the practice of ‘hiding’ capital in foreign bank accounts to receive tax free interest.

Each Member State is obliged to collect bank account data and forward it to the tax authority of the owner’s country of residence.

Third party signatories like the Channel Islands, Isle of Man and Switzerland were allowed to offer an alternative withholding tax option to clients. The initial tax rate was 15% but has increased to 35%.

Guernsey and the Isle of Man dropped the withholding tax option in July 2011, and now Jersey will do the same.

If you live in Portugal and have a savings account in Jersey, your bank will pass details about your bank account to the Portuguese tax authorities. This will be done automatically each year, regardless of whether the Portuguese authorities have requested information.

Your local tax authority will most likely compare the information received with that provided by you on your tax return. If you have not been declaring everything correctly they will probably look for payment of the outstanding tax plus interest and penalties.

The information exchanged under the Savings Tax Directive is:

• Your name, address and residency details

• Details of the source of the funds

• The amount of savings held

• The period to which it relates.

Currently, this applies to savings income. Over the coming years the Directive will be extended so information on the following will also be automatically exchanged:

• Life insurance products

• Pensions

• Employment income

• Directors’ fees

• Immoveable property – ownership and income

• Dividends

• Capital gains

• Royalties

On making the announcement, Jersey’s chief minister Senator Ian Gorst explained that Jersey had been waiting for the EU to clarify its position. Following the EU Council meeting in June and the G20 call in July for all jurisdictions to commit to automatic exchange of information, Jersey considers this is the right time to propose the change from the retention tax.

Geoff Cook, Chief Executive of Jersey Finance, the body tasked with promoting the finance industry, said that the timetable was sensible and reflected progress from the EU and wider G20 countries in supporting automatic exchange of information on a truly level playing field.

EU Tax Commissioner Algirdas Šemeta welcomed the news: “Automatic exchange of information has long been a cornerstone in the EU’s fight against tax evasion and is now set to become the international standard. It is the best way of ensuring that every country can collect the revenues it is rightfully due. I welcome Jersey’s decision to join the global move towards more openness and greater information exchange. This will help facilitate fairer and more effective taxation, in Europe and globally.”

This will be another tool for the Portuguese tax authorities to use in their fight against offshore tax evasion. It will help them collect unpaid taxes and ensure that foreign bank accounts are fully taxed in future.

Jersey is trying to shake off its ‘tax haven’ reputation. However it still remains on some countries’ blacklists, as is the case here in Portugal. Guernsey, the Isle of Man and Gibraltar are also on Portugal’s blacklist of territories that provide a more favourable tax regime.

This has consequences for taxpayers with assets in Jersey. Income and gains derived from assets held in any of the blacklisted territories are taxed at a penal rate of 35% here in Portugal, which is higher than the usual rates. Owning assets in the UK offshore centres is therefore not the most tax efficient way of holding your capital.

There are effective, fully legitimate tax planning arrangements available here in Portugal which can provide significant tax benefits for your investment income and wealth. You should seek professional advice on how best to structure your assets to be as tax efficient as possible.

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Gavin Scott, Senior Partner of Blevins Franks. Gavin has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers.

Blevins Franks Financial Management Limited is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided overseas, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. | www.blevinsfranks.com