Reports being drawn up by law firms in the Channel Islands on the future of their transparency and tax regimes are likely to spark a political war that will include the EU, the UK Government and other European tax havens
The reports' conclusions, due to be sent to the Jersey government as part of its debate on the subject, are likely to bring the Channel Islands to loggerheads with the EU. The reports want all European countries to have a level playing field in respect of their duties to disclose outside cash deposits for foreign tax purposes. However, lawyers and the finance community in the Channel Islands are concerned that, while this may be imposed in their jurisdiction, other countries such as Austria, Luxembourg and Belgium, which have so far refused to cooperate in this area of exchange of information, may avoid enforcing the relevant legislation, the EU Savings Tax Directive.
The Channel Islands has to choose between introducing this legislation or imposing a withholding tax on individuals, to be set at 15 per cent for 2004 and rising to 35 per cent in 2011. This will not apply to companies and trusts. Currently, foreign investors are not subject to tax, whereas residents are.
John Greenfield, managing partner of Carey Langlois, which recently announced its forthcoming merger with Jersey firm Olsens, said: "Without a level playing field, foreign investors are likely to look to utilise services in countries such as Switzerland [which may opt out of the EU's directive] rather than Jersey and Guernsey because they're more accessible."