Tax, tax, tax and more tax!

news: Tax, tax, tax and more tax!

Effects of EU Savings Tax Directive still to be felt

The effects of the new Savings Tax Directive on both savers and banks are ongoing. It has recently been reported that in August alone nearly seven billion euros poured out of Swiss bank accounts and into funds in Luxembourg, outside the provisions of the Directive. UK experts are warning that the end of the tax year could result in large numbers of savers leaving the Channel Islands.

The Directive began in July and gives savers in Guernsey, Jersey and Isle of Man a choice of paying a withholding tax or allowing their bank to fully disclose details of their account to their home tax authority. A tax expert at Ernst and Young, in Guernsey, recently warned that banks in the Channel Islands could see the exodus of a lot more money, “as more and more people belatedly come to an understanding of what the Directive means”.

Many savers may take fright when they have to pay the 15 per cent withholding tax at the end of the tax year, while others will worry about disclosure. Wise investors have already wrapped up their capital in life assurance bonds or trusts, which are outside the Directive.

Disclosure rules paying off for UK treasury

The hardline stance being taken by Chancellor Gordon Brown on the issue of tax avoidance appears to be paying off for the Treasury, which, according to reports, has recouped hundreds of millions of pounds in tax revenues within the last 18 months as a result of tough tax planning disclosure rules.

The controversial disclosure rules, introduced following the 2004 Budget, require accountants and tax planners to disclose to HM Customs & Revenue the details of new schemes that they intend to market to clients within five days of their implementation.

So far, around 550 schemes relating to direct tax have been submitted to HMRC under these disclosure rules. A further 750 schemes relating to Value Added Tax and 200 schemes concerning stamp duty have also been referred to the tax authorities.

While exact figures on the amount of tax revenue the Treasury has recouped as a result of the disclosure rules are unavailable, reports suggest a figure of £500 million since their introduction.

The government’s tough stance on tax avoidance is unlikely to soften, with the remuneration of highly paid city bankers and executives the tax man’s latest target.

A new stealth tax?

Savers and UK insurance companies were surprised recently by the news that Gordon Brown is planning to tax the reserves held by life insurance and pension companies.

Although policyholders will not be directly hit, the companies are likely to pass the cost onto their customers. The Association of British Insurers has described it as a tax on savings – ‘another tax on savings’ may be more appropriate!

The new regulation was contained in draft anti avoidance legislation, published in early October, and it will prevent life insurers from holding capital in their reserves in order to reduce taxable profits. Companies like Legal and General, Prudential and Friends Provident are up in arms about the move: “This draft legislation has been published without any consultation. The Government is proposing retrospective taxation on reserves, which provide security for this industry’s customers. Our accumulated reserves have been built up over many years and include funds, which have already been taxed.”

Irish success at catching

tax evaders

Irish tax evasion probes have yielded over two billion euros for the government. Chairman of the Irish Revenue Commissioners, Frank Daly, recently told a parliamentary committee that special investigations into tax evasion, bogus non-resident accounts and offshore holdings have yielded additional tax revenues in excess of ¤2.1 billion.

According to Daly, the efforts of the Revenue Commission’s Investigation and Prosecutions Division over the last two years are now “bearing fruit”, with the running total collected from bogus non-resident accounts making up the largest portion of these additional revenues, at ¤822 million. Of this total, ¤225 million was deposit interest retention tax payments from financial institutions, ¤227 million was from voluntary disclosures and ¤370 million was paid as a result of investigations.

Meanwhile, the Revenue’s Offshore Assets Investigation Division brought in additional revenues of ¤769.5 million and the “follow through phase” of the investigation, which will attempt to identify those who have not disclosed outstanding tax liabilities voluntarily, has now begun. The Revenue has obtained six High Court orders against financial institutions and it expects to have sought orders against all suspected institutions by the end of the year.

One of the starting points of the offshore investigation related to trusts based in Jersey, and Daly said 254 individuals have since come forward to make voluntary investigations relating to Jersey trusts. “We have now identified those who did not, and they are being pursued as we speak,” he added.

Portuguese banks face allegations of tax evasion

According to reports in the Portuguese media, the country’s authorities have begun investigating allegations of tax evasion and money laundering by some of the country’s largest banks.

Jornal de Negócios Online revealed that the investigation, which relates to tax avoidance amounting to “many millions” of euros, was ordered by the government. The public prosecutor’s office has subsequently organised a number of searches at financial institutions across the country. In a statement, Banco Comercial Português, Portugal’s biggest bank, said that it intends to cooperate fully with the authorities during the course of the investigation.

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