Owen, Christopher: Offshore Survey – January 2004

Offshore Survey – January 2004 by Christopher Owen
Uncertainty over EU savings tax Directive
Differences over the application of the EU Directive on the taxation of savings in Member States’ associate and dependent territories and over negotiations with third countries emerged during the ECOFIN meeting on 4 November. In June, EU finance ministers agreed, as part of a package of three measures to tackle harmful tax competition, a Directive to ensure that interest payments on savings held by individuals within the EU would be taxed. The Directive is to be implemented by 1 January 2004 and applied from 1 January 2005, provided certain third countries, such as Switzerland, and relevant dependent or associated territories agree to apply equivalent or the same measures from the same date. In the case of associate and dependent territories, the Directive provides for the application of identical measures to those proposed for EU members, either automatic exchange of information or a withholding tax at source. In September, UK Chancellor Gordon Brown told EU finance ministers that Guernsey, Jersey and the Isle of Man would apply a withholding tax regime similar to that permitted in Austria, Belgium, and Luxembourg. The British Virgin Islands, Turks & Caicos Islands and Montserrat had also indicated they would comply with the new EU rules. But Brown admitted that the Cayman Islands had not come forward with proposals, and he would legislate if necessary. “It would probably be through a Treasury order – secondary legislation,” said the Treasury. But Belgium voted against Jersey?s request to the EU to introduce a system “similar” to that agreed by Switzerland ? taxation at source and exchange of information on demand rather than automatically. It said that associate and dependent territories were required to introduce “identical” measures. The Netherlands proposed drawing up a standard agreement to enable Member States to negotiate separate agreements with associate and dependent territories. The aim is to secure a consensus by the beginning of January. The Directive also provides for the conclusion of agreements with third countries to ensure the introduction of “equivalent” measures. Agreement was reached with Switzerland on 6 March and the European Commission said that reciprocal deals with Monaco, San Marino and Andorra were within reach. But EU internal market commissioner Frits Bolkestein warned that Liechtenstein remained unwilling to co-operate. “The Commission has asked the EU to apply pressure on Liechtenstein,” his spokesman said.

China and Hong Kong sign Closer Economic Partnership Arrangement

A ?Closer Economic Partnership Arrangement? (CEPA) was signed between Hong Kong and China on 29 June. It will scrap tariffs on 273 types of Hong Kong exports and liberalise market access for 17 service sectors. The CEPA covers three broad areas, namely trade in goods, trade in services, and trade and investment facilitation. The specific commitments in liberalising trade in goods and services under CEPA will be implemented from 1 January 2004. For goods, exports to the Mainland of ?Hong Kong origin? from some 270 tariff classes will enjoy zero tariffs from 1 January 2004, provided they meet CEPA rules of origin requirements. China has also agreed to apply zero import tariff by 1 January 2006 upon applications by local manufacturers for other tariff classes and meeting the CEPA rules of origin. Hong Kong will continue to apply zero tariffs for Mainland products. For services, CEPA removes market access restrictions for 17 service sectors, including financial services (banking, securities and insurance), for ?Hong Kong companies? ahead of China?s WTO commitments. ?Hong Kong companies? must be registered and established in Hong Kong, pay profits tax, have substantive operations in Hong Kong for a specified number of years, rent or own business premises in Hong Kong, and employ staff locally. It is possible for foreign companies with operations in Hong Kong, including local subsidiaries of multinationals, to enjoy the benefits of CEPA provided they meet the criteria for being defined as a Hong Kong company. For trade and investment facilitation, the CEPA provides for the promotion of cooperation between China and Hong Kong in seven areas ? customs clearance, quarantine and inspection of commodities, quality assurance and food safety, small and medium-sized enterprises, Chinese medicine and medical products, electronic commerce, trade and investment promotion, and transparency in law and regulations.