Background on the Directive
The Directive, which originally came into effect on 1 July 2005, is an agreement between EU member states to automatically exchange information about EU tax resident individuals who earn savings income.
The Guernsey government, however, agreed to implement a retention tax option during a transitional period and Investec Bank (Channel Islands) Limited applied a default retention tax from savings income payments or ‘exchange of information’ at the client’s specific request. Retention tax rates were 15% from 1 July 2005, 20% from 1 July 2008 rising to 35% from 1 July 2011.
Background on the decision to change to automatic exchange of information
Following considerable consultation with the industry, the government of Guernsey has decided not to apply retention tax beyond 1 July 2011 citing the following reasons:
“It is the view of the Fiscal and Economic Policy Group that, in reputational terms, being a jurisdiction that applies a retention tax of 35%, no matter how few cases this may apply to, nor for how little time this may apply, would be in contradiction of Guernsey’s commitment to being a well regulated, respected, tax transparent, offshore finance centre.”1
This means that between 1 January 2011 and 1 July 2011, all banks in Guernsey will no longer be able to apply a retention tax on savings income payments for EU residents. Instead banks will be required to exchange information in line with the impending legislation.
How will it affect me?
If you are an individual currently resident in an EU Member State and earn bank interest or other savings income and already authorised the bank to automatically exchange information regarding your savings income, then the change is not applicable to you.
If you are an individual currently resident in an EU Member State and earn bank interest or other savings income from which a retention tax is deducted, from 1 January 2011, this savings income will now be paid gross. Instead of retention tax, details of your interest received, identity and residence will be passed from us to the Guernsey tax authorities for onward transmission to the relevant tax authority in your EU country of tax residence.
What details will be passed to the EU Member tax authority?
- The Bank’s name and address
- Your name and residential address
- Your bank account number(s) or identification of the account or relevant investment
- Your Tax Identification Number (TIN) and/or your place and date of birth
- Amount of savings income attributable to you individually from 1 January to 31 December for each account/portfolio
What is savings income?
Savings income is essentially interest earned on bank deposits, interest from and proceeds on the sale or redemption of certain bonds and income from certain types of investment funds (principally open-ended money market retail funds).
When is savings income disclosed?
Savings income which is paid or credited throughout the calendar year (ie January to December) is disclosed no later than the end of March in the following calendar year.
What details do I need to provide?
You need to provide us with a ‘TIN’ which is a Tax Identification Number – basically a tax registration number used in some EU Member States. This will enable each EU Member State to properly identify the beneficial owner of the account or investment.
What if I don’t have a TIN?
If you do not have a TIN or unable to obtain one, you will need to provide us with your place of birth.
How do I know if I am exempt from the Directive?
If you believe you are exempt from any aspect of the Directive, you should seek independent tax advice.
What if I reside in the UK but consider myself to be non-domiciled for UK tax purposes?
Guernsey has made special provisions for those individuals who are resident in the UK for tax purposes, but who, by virtue of being non-UK domiciled, are not taxed on Guernsey income where it is not remitted to them in the UK, and who as a matter of practice
do not remit such income.
If you are a UK tax resident individual, but are not domiciled in the UK for income tax purposes, and you confirm the remittance basis will apply to you, you may apply for an exemption from the EU Savings Tax Directive and declare your non-UK domiciliary
tax status for all accounts/portfolios held with the Bank. You will need to complete an additional form which is available from your relationship manager.
What if I am an EU National but I do not reside in the EU?
As long as you remain resident outside the EU Member States, bank interest or savings income paid to you will fall outside the scope of the Directive. We may ask for proof of your residency.
What if I am a resident of an EU Member State and hold a joint bank account with a non-EU resident?
Where an interest payment is credited to a joint account and where one of the joint account holders is a resident of an EU Member State the latter will normally be liable to automatic exchange of information. This will be reported on the basis that interest is
allocated equally among the holders of the joint account. However, alternative arrangements may well be appropriate and you would need to discuss these with your relationship manager. What should be kept in mind is the extent to which a joint account
holder who is resident in an EU Member State has the benefit of the interest payments credited to the account.
What if I move out of an EU Member State?
It is important that you notify us promptly of any change in personal circumstances and in particular your country of tax residence and residential address. If any change in circumstances is not notified to us, exchange of information may continue.
If you are tax resident at any time in the EU, and savings income was paid to you during that time, the amount of savings income earned for that period will be disclosed to that EU Member State at the beginning of the next calendar year.
What if I move from one EU Member State to another?
It is important that you notify us promptly of any change in personal circumstances and in particular your country of tax residence and residential address to ensure that the information is being sent to the correct tax authority of the EU Member State in which
you are resident. This may mean that details of savings income is reported to different EU Member States, depending on the circumstances.
What is the position with companies?
Payments to legal entities and other entities (e.g. partnerships and limited partnerships) whose profits are taxed under the general arrangements for business taxation are outside the scope of the Directive.
What is the position with trusts?
A Guernsey trust has no separate legal personality in Guernsey law and accordingly all payments to a trust are made to the trustees.
If a professional trustee receives savings income and, under the terms of the settlement, the beneficiary has a current fixed entitlement to an ascertainable part of that savings income (for example, through a life interest trust), the trustee would need to consider whether the beneficiary is a relevant payee. If so, the trustee would be viewed to be a paying agent in respect of that income and would need to consider whether exchange of information should be applied (i.e. is the beneficiary resident in an EU Member State?).
Which countries are EU Member States?
Member states of the EU are:
Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.
The Canary Islands is deemed part of Spain for the purpose of the Directive and residents of the Canary Islands will have that income reported.
Gibraltar is deemed part of the UK for the purpose of the Directive and residents of Gibraltar will have that income reported.
For further information, please contact Investec Bank (Channel Islands) Ltd, PO Box 188, Glategny Court, Glategny Esplanade, St Peter Port, Guernsey, GY1 3LP on +44 1481 723 506 or enquiries@investec-ci.com or visit www.investec-ci.com