Jersey to end banking secrecyfor EU residents
Jersey is to drop the withholding tax option under the EU Savings Tax Directive. It will be mandatory for financial institutions to automatically exchange information on their clients’ bank accounts, effectively bringing the era of banking secrecy to an end in the offshore centre.
This will bring Jersey in line with Guernsey and the Isle of Man, who have already abolished the withholding tax (or “retention tax”) option.
The Council of Ministers announced in August that it will formally request the States of Jersey to implement compulsory automatic exchange information for EU savings tax agreements. The Council will bring legislation to the States as soon as possible to effect the change.
The official start date will be 1st January 2015, though financial institutions will be allowed to start earlier if they wish to harmonise operations with those in Guernsey and Isle of Man.
The Savings Tax Directive came into force in July 2005. It was established to ensure that everyone living in the EU pays tax on their interest earnings to their country of residence regardless of whether they declare the income or not, thus ending the practice of ‘hiding’ capital in foreign bank accounts to receive tax free interest.
Each Member State is obliged to collect bank account data and forward it to the tax authority of the owner’s country of residence.
Third party signatories like the Channel Islands, Isle of Man and Switzerland were allowed to offer an alternative withholding tax option to clients. The initial tax rate was 15% but has increased to 35%.
Guernsey and the Isle of Man dropped the withholding tax option in July 2011, and now Jersey will do the same.
If you live in Spain and have a savings account in Jersey, your bank will pass details about your bank account to the Spanish tax authorities. This will be done automatically each year, regardless of whether the Spanish authorities have requested information.
Your local tax authority will most likely compare the information received with that provided by you on your tax return, and also on Form 720 in Spain. If you have not been declaring everything correctly they will probably look for payment of the outstanding tax plus interest and penalties.
The information exchanged under the Savings Tax Directive is:
Your name, address and residency details
Details of the source of the funds
The amount of savings held
The period to which it relates.
Currently, this applies to savings income. Over the coming years the Directive will be extended so information on the following will also be automatically exchanged:
Life insurance products
Immoveable property – ownership &income
On making the announcement, Jersey’s chief minister Senator Ian Gorst explained that Jersey had been waiting for the EU to clarify its position. Following the EU Council meeting in June and the G20 call in July for all jurisdictions to commit to automatic exchange of information, Jersey considers this is the right time to propose the change from the retention tax.
Geoff Cook, Chief Executive of Jersey Finance, the body tasked with promoting the finance industry, said that the timetable was sensible and reflected progress from the EU and wider G20 countries in supporting automatic exchange of information on a truly level playing field.
EU Tax Commissioner Algirdas Šemeta welcomed the news: “Automatic exchange of information has long been a cornerstone in the EU’s fight against tax evasion and is now set to become the international standard. It is the best way of ensuring that every country can collect the revenues it is rightfully due. I welcome Jersey’s decision to join the global move towards more openness and greater information exchange. This will help facilitate fairer and more effective taxation, in Europe and globally.”
This will be another tool for the Spanish tax authorities to use in their fight against offshore tax evasion. It will help them collect unpaid taxes and ensure that foreign bank accounts are fully taxed in future.
All Spanish residents had to declare all overseas assets worth over 50,000 euros in April this year on Form 720. This was for assets as at 31st December 2012. The next assessment point is the end of this year, when new assets or those which have increased in value by over 20,000 euros need to be reported.
The tax penalties for non-disclosure are very high and can be devastating. In today’s world the Spanish authorities are likely to find out about undeclared assets – it really is only a matter of time.
There are effective, fully legitimate tax planning arrangements available here in Spain which can provide significant tax benefits for your investment income and wealth. You should seek professional advice on how best to structure your assets to be as tax efficient as possible.
To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com
You may also contact our partner Paul Montague on Tel: 922 716 079 or firstname.lastname@example.org