Yet another offshore financial centre is to scrap the withholding tax option under the European Union Savings Tax Directive.
Jersey has agreed to step into line with Guernsey and the Isle of Man with the move, which brings banking secrecy on the channel Island to an end.
Under the directive, Jersey tax authorities will automatically exchange financial information about bank accounts with European Union countries.
The veil of secrecy will be pulled back for the final time on January 1, 2015, but unofficially, banks can start notifying tax authorities about account details when they wish.
European Union tax commissioner Algirdas Šemeta said: “Exchanging tax information like this is the key to the fight against tax evasion and is set to become an international standard. We believe this is the best way to make sure tax that is due is collected.”
What is the Savings Tax Directive?
The Savings Tax Directive has been enforced in the European Union since 2005. The directive ensures that regardless of where a saver lives, they pay tax on any interest they may earn in the country where they live even if they fail to declare the income on a tax return.
The directive allowed non-European Union states, like Switzerland, the Channel Islands and the Isle of Man to make 35% withholding payments against savings income.
How will savers in Jersey be affected?
Banks will pass financial details about anyone with a savings account in Jersey to the tax authority in the country where they live. The bank will do this yearly without any formal request needed from the tax authority.
Most likely, the tax authority will then compare income declared on a tax return with the data, and will write and ask for an explanation for any discrepancy.
If tax has deliberately been withheld, no doubt the tax authority will look for settlement, a penalty charge and interest.
What information is exchanged?
The bank will give:
- Your name, address and tax residency details
- Information about the source of the funds
- The balance of any accounts
- The period to which the information relates
Are only savings accounts affected?
Yes. However, the European Union plans to extend the directive to include other investments, like:
- Life insurance
- Pensions
- Employment income
- Director fees
- Rental property ownership and income
- Dividends
- Capital gains
- Royalties
