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WAITING GAME AS EU DIRECTIVE TAKES EFFECT
The much-stalled EU Savings Tax Directive ran into yet another glitch on the eve of its implementation with the discovery of an apparent loophole in respect of the UK and Gibraltar.
In the end, however, the directive did take effect on Friday, with leading players in the Island's finance industry playing down its likely impact.
The Manx Government was quick to respond to the Gibraltar anomaly with Chief Minister Donald Gelling confirming that he would be pressing for urgent action.
The Isle of Man is fully co-operating with the directive by applying a retention tax to the interest paid to savings depositors resident in an EU country.
However, it appears the directive will not apply between the UK and Gibraltar because the latter is being treated as part of the former for the purposes of the directive.
Mr Gelling said: 'The Isle of Man is an internationally responsible jurisdiction, but in complying with international agreements we expect a level playing field between the relevant parties.
'Clearly there will be no level playing field if, because of this outstanding loophole, Gibraltar is in a different position from the Isle of Man and the other Crown Dependencies in relation to the UK.
'All three Crown Dependencies — ourselves, Guernsey and Jersey — are pushing for closure of the loophole as soon as possible. As Chief Minister of the Isle of Man, I have an assurance in writing from the UK Paymaster General that the loophole will be closed as a matter of urgency, and we expect that to happen.'
As regards the likely impact the directive will have on the Island's finance industry, worries that investments would flood into other jurisdictions not affected by the directive have, so far, proved unfounded and many finance houses believe all the hype may have been overplayed.
In terms of the directive investors with deposits in the Island have to either disclose information of their savings to the country in which they are domiciled or pay a withholding tax. This tax starts at 15 per cent, rising to 20 per cent after three years and 35 per cent after another three.
David Fulton, business development manager with Irish Nationwide, said his company had actively tried to diversify its customer base into corporate investment, unaffected by the tax, in order to minimise any possible fallout.
He said: 'Our experience to date shows that most of our customers are staying put, they are accepting the retention tax or choosing to disclose. I would say that we haven't lost a lot, only a tiny proportion of our business has gone outside the EU.
'Our situation is fairly different as we have repositioned ourselves to take deposits from institutions like the offshore life companies. Our deposit base is not as vulnerable as perhaps some of the other banks. We started to reposition ourselves two or three years ago in response to this coming in.
'We don't want to be smug or complacent, but at the moment we are happy that we have not suffered the loss of business it was thought we might. A lot depends on the composition of your customer base: if you are very dependent on the personal deposits sector within the EU, then you stand to be more vulnerable.'
Simon Hull, managing director of Alliance & Leicester International Limited, said that he had been concerned that his business might lose up to a quarter of its deposits.
He said: 'We were very worried and we still remain cautious. We have just written to 7,018 customers that we believe are covered by the directive and that has resulted in a loss of about 20m in deposits. We have 800m potentially impacted by the directive and my concern was that we could lose around 200m. We are cautiously optimistic.'
Mr Hull told the Times newspaper:'The majority of customers in the Isle of Man, where investors can choose to have their information passed on to the Revenue or opt to pay a withholding tax, have opted to disclose their detaiils to the taxman.'
David McGarry, KPMG's managing partner, echoed this outlook in his comments to the Financial Times: 'We are not seeing a move into funds or a perceptible increase in the formation of companies and trusts. Nor is money being moved to far-flung Pacific Islands.'
He believes Europe's tax authorities are over-estimating the amount of money hidden from tax inspectors in offshore centres.
James Horrigan, head of private client services at Anglo Irish Bank, is also optimistic as to the effect. He told Business News: 'We will be affected by the directive, but the impact is minimal at the moment, the number of clients who have moved into other jurisdiction has been very few. I think there is probably an understanding, that to go to another jurisdiction outside the directive, that is not regulated, may be folly in the long term. The ESD has finally come to pass and we are taking the approach that it's here to stay and we are going to have to work with it one way or another.'
Banks have dismissed as unfounded speculation that they would be looking for loopholes in the legislation, although that may become a possibility if the directive begins to have a greater effect. Customer losses have been less than expected but the cost of incorporating the new system has been substantial.
Anthony Brand, marketing and business development manager for Singer & Friedlander, said that they would be affected by the legislation but wouldn't lose too many customers.
'All banks are massively affected by this legislation, we are having to set up new systems to manage the reduction tax, but the amount of business we have lost is insignificant as we have a wide spread of clients ranging from personal to corporate.'
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Weather for Isle of Man
Thursday 09 February 2012
Today
Light showers
Temperature: 7 C to 9 C
Wind Speed: 20 mph
Wind direction: South west
Tomorrow
Light rain
Temperature: 6 C to 9 C
Wind Speed: 14 mph
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