From: John Boyle 
Newsgroups: uk.finance
Subject: Re: In the City of London (ie. nr. Liverpool Street) - 'offshore' bank accounts? tax free?
Date: Fri, 15 Sep 2006 21:36:49 +0100

In message , Eric Jones 
 writes
>But the interest earned will be declared to the Inland Revenue due to a
>European parliament law/ruling.

(My reply applies only to the crown dependencies of IOM and CI.)

No, only if the depositor elects. the "EU Savings Directive" requires 
the deposit taker to enquire of the depositor if they wish the gross 
interest paid to be advised to their country of residence's Revenue. If 
the depositor elects not to then a 'retention' tax (in effect a 
witholding tax) is deducted. for the first three years at 15%, rising to 
20% for 3 years and then 35%.

>Punitive rates of tax will be levied on offshore accounts if interest is not
>declared.

Not so in most cases. If the Revenue of the depositor country of 
residence learns that interest is being earned in an offshore 'haven' 
then they will only charge the marginal tax required over and above the 
retention tax deducted to bring the total tax to that which would have 
been paid had it been declared. Note that the default situation is for 
retention tax to be applied NOT exchange of information and therefore 
the Revenue will not learn of it via the deposit taker or the offshore 
regime.

The exception is those individuals who would have paid tax on the 
interest at a rate lower than the retention tax applied.

-- 
John Boyle