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The Commission has set a road map to close the gaping loopholes of the
European savings law, which has been sidestepped by offshore tax avoiders.
The EU tax commissioner has begun consulting the savings industry on a range
of measures to alter the savings directive, which is riddled
with exemptions. As we all know the directive, was introduced in July 2005,
is meant to flush out tax evaders and require them to pay tax to their home
country on earnings from savings held in third countries. Non-EU countries
such as Switzerland and Liechtenstein also agreed to apply a withholding
tax.
But evidence shown that the directive is failing to bite ,
especially to some important big offshore financial centers.
Mr. Kovacs EU Tax Commissioner believes that some savers have moved to Hong
Kong and Singapore where the Directive does
not apply therefore he is trying to arrange reciprocal deals with
them.
However EU Commission officials state that the current directive provides a
good basis for future work. Mr. Kovacs will fulfill the new operation of the
directive by June 2008. However ,
whether he can convince EU member states and third countries to give their
unanimous agreement still remains questionable !
 The Commission has requested
information concerning taxation rules applied on the registration of second-hand
cars brought into Cyprus from other EU Member States.
According to a formal notice from the Commission, the rules that are applied are in a way
in
breach with EC Treaty provisions on equal treatment of domestic products and those of
other Member States.
The government of Cyprus is
requested to reply within two months. If the Commission is not satisfied with
the response, it may proceed with the procedure of filling a case before the Court of Justice.
Sweden-US tax treaty
Under the new treaty Sweden -US, which entered into force on August 31 2006, the
dividend withholding tax is reduced to nil in most situations when dividends are
paid from a subsidiary in one state to a parent company in the other state. Also
pension funds may benefit from the exemption from withholding tax on dividends
from the other contracting state. The protocol contains, however, a number of
exemptions the purpose of which is to avoid treaty shopping. The rules regarding
withholding tax apply as of October 1 2006.
Sweden-Austria tax treaty
Prior to the treaty amendment, only Austria was entitled to tax capital gains
arising from a sale of shares. In combination with the fact that under Austrian
domestic law only an increase in value after the change of residence is taxable,
taxpayers avoided Swedish taxation by moving their residence to Austria and
thereafter disposing of their Swedish shares.
On August 21 2006, a protocol was signed in order to restrict the above
described possibility to avoid capital gains taxation in Sweden. The protocol
states:
- People whose residence was moved to Austria no later than August 20 2006
are not affected by the amendment and can generally still sell shares
according to the former wording of the treaty, regardless when the shares
are sold.
- People whose residence was moved to Austria on August 21 2006 or later
may sell shares during 2006 without triggering taxation in Sweden.
- People whose residence is moved to Austria on August 21 2006 or later
and who sell shares after year-end 2006 are taxable in Sweden for the
increase in value which incurred prior to the change of residence. Under the
protocol, Sweden may tax a value increase on both Swedish and foreign
shares. Under Swedish domestic law, however, Sweden may not tax a value
increase upon disposal of foreign shares, unless the seller is subject to
tax in Sweden due to having its domestic residence in Sweden under Swedish
domestic law.
- For holdings below 1% of the company's capital, Sweden may only tax an
increase in value upon a sale which incurs within five years after the
change of residence.
There is a large number British
nationals owning property in Cyprus
and a great proportion of the reside
permanently in Cyprus. Inheritance
Tax is an issue that all look into as time passes. Although Cyprus has
abolished Inheritance Tax the main concern is whether they have to
pay in U.K. Inheritance Tax.
If you are domiciled in Cyprus (due
to the double taxation agreement between Cyprus and the UK), you are
exempted from such a taxation on one’s worldwide assets. If not then there
is an inheritance tax in the UK for total net assets in excess of £300,000
as of April 2007 (the “nil rate band”) and the tax rate can
reach 40 per cent. This is a substantial tax for example if one of
the spouse dies then the surviving one has no money to pay the above tax, it
means that she or he will have to either sell family assets or property or
even her/his only home.
Cyprus is a low tax jurisdiction, not only because it has the lowest income
tax in Europe, but also because pensions are taxed at 5 per cent for
expatriates, compared with the U.K. which is 22 per cent. Therefore Tax
planning is required for this
category of people. They must must prove to their
home country tax authorities that
they are domiciled in Cyprus. "Domicile" means that one has definitely
decided to emigrate to Cyprus (for example) and live here permanently until
the end of his life. He must prove that he does not intend to return to the
UK at some time in the future and to prove that for all intents to acquire
all the privileges, benefits and liabilities as the locals.
It is a very difficult job to persuade the UK tax authorities and it is
recommended to seek tax advice
on the issue as the the UK tax authorities are getting more and more
keen to examine British citizens’ foreign assets.
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