‘Offshore’ islands pose dilemma for harmonisers

Date: 02/12/1999

ONE of the major problems for champions of the EU savings-tax plan was always going to be the Union's 'offshore' islands.

The Channel Islands may be small, but they manage to pack in a lot of financial services and tax-advantageous investment vehicles. Jersey alone has €400 billion under management, of which €160 billion is in straightforward bank deposits.

The problem is that Jersey, Guernsey and the Isle of Man are not members of the EU and have no obligation to align their laws or fiscal systems with those of the Union. But they would feel under enormous pressure to conform in the event of an EU-level agreement, as only an estimated 5&percent; of their deposits are of non-UK Union origin.

As a possible deal loomed, the islands' worries increased. Not only could they lose this business, but their non-EU private clients operations could also be scared off to other centres by fears that the Union move was just a first step.

The Luxembourghers were never going to accept an agreement which excluded the Channel Islands, since the introduction of a 20&percent; tax in the Grand Duchy would have been followed by an immediate outflow of capital to Jersey and Guernsey banks.