The Savings Directive - an Alternate View:

OECD member countries met with representatives of offshore financial centers during an October 14-15 meeting in Ottawa of the Global Forum on Taxation. The Center for Freedom and Prosperity has announced that "the OECD was forced to concede that many of its own member nations also were tax havens, and that persecuted jurisdictions on the OECD blacklist had no obligation to undermine their market-based laws unless all countries agreed to the same misguided policies (the famous "level playing field" requirement)."

The trigger for the meeting was the EU's savings tax directive, but the European Commission does not in fact support the view that the EU's savings tax directive promotes an inequality in the treatment of offshore financial centers that are not members of the EU and that this inferentially creates a disadvantage to these centers.

The primary objective of the directive is to ensure a minimum level of taxation on interest income paid in each Member State to individuals who are resident for tax purposes in another Member State. Secondly, the text proposes a flexible "coexistence model" to enable tax to be levied effectively. Each Member State must choose between levying a withholding tax or providing information to the other Member States regarding the interest paid to individuals resident there (the provision of such information is automatic and cannot be limited in scope nor subject to certain conditions). Finally, because directives are binding as to the end to be achieved leaving the form and method open to member states, the latter must take the necessary measures to enable the agents (banks or any economic operator responsible for the payment of such interest) established on their territory to carry out the tasks required.

While it is true to some extent that the savings tax directive, appears to have undermined the principle and timetable for tax information exchange as set by the OECD, the options afforded under the directive provide the flexibility to protect confidential sources of information while at the same time furnishing not only the fiscal data necessary for preservation of global financial integrity but also provide for establishment of mechanisms to transfer the taxes.

The European Commission has also stated that there is nothing in the terms of the EU savings tax directive that prevents the OECD agreement to go further when it comes to issues such as defining tax fraud or exchanging information, but it seems that this provided little support for the OECD's defeat in Ottawa. Offshore centers may yet be able leverage this outcome to advantage.

Offshore centers have always maintained and there was never any difficulty by governments in financial centers whether onshore or offshore accepting the principles of transfer of information and transparency when applied to cases where investigation is associated with money laundering, terrorism and other such crimes that require disclosure of confidential data. In fact, most jurisdictions have now passed laws to facilitate these types of investigation.

Consequently, offshore centers should view this victory as effectively providing leverage for re-negotiating the terms of any tax information exchange proposals put forward by the OECD, and should be vigilant with regard to efforts to enforce the level playing field concept.

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