The Permanent Secretary, Finance, Delton Jones, briefed the Advisory Council at the session on Wednesday 23 February on the policy recommendation for the TCI to progress from the transitional withholding tax arrangement to an automatic exchange of information regime in line with provisions of the Directive and consistent with international standards and expectations on transparency and the exchange of information.
The Advisory Council, noting that in keeping with the objective of the TCI to match up to international standards of transparency as a means to enhance the reputation of the jurisdiction and provide a sound platform for future growth, accepted the recommendation and requested the Ministry of Finance to take the necessary steps to implement the policy as soon as practicable.
The EU Savings Tax Directive (EUSD) (Council Directive 2003/43/EC of 3rd June 2003) came into effect on 1st July 2005 and applies to all EU Members States as well as their Territories. The aim of the Directive was for all countries to freely disclose interest earned by a resident of an EU country in order to ensure that the interest was fully declared in his country of residence. It currently applies to bank interest, bond interest, and analogous income, such as income from bond funds, money-market funds, loans, and mortgages.
Many non-EU states and countries, including the UK’s Overseas Territories, agreed to introduce similar measures and the TCI implemented the Directive with the passing of the Retention Tax Ordinance 2005. Countries were able to choose whether to move straight away to full implementation of the information exchange provisions under the EUSD or whether to adopt transitional provisions which meant that a withholding tax would be levied on EU resident investors and passed to the appropriate tax authority in the country of residence. The TCI along with BVI opted for the transitional arrangements which required withholding tax to be applied at the following rates:
- 15% in the first three years, then 20% in the next three years, and 35% after January 2011
The BVI announced in December its intention to move away from the transitional arrangement and to implement automatic exchange of information under the EUSD by the end of 2011.
The Ministry of Finance, as the responsible body, will now lead on work to introduce the new policy and will be working alongside colleagues from the Attorney General’s Chambers and the Financial Services Commission.
Permanent Secretary Finance Delton Jones said: “The Advisory Council’s acceptance of this recommendation for a progression from the current transitional withholding tax method of compliance under the EU Savings Tax Directive to an automatic exchange of information regime is welcome news. This move will ensure the TCI is in line with the international trend, including among other UK Overseas Territories, and should enhance the country’s reputation as a well regulated financial centre.”
