In fact, more than two years ago, when it first became likely that the Directive — designed to prevent tax evasion and catch cross-border investors in the tax man’s net — would be implemented, Barclays as well as other local banks and financial operators warned their clients to obtain independent professional advice on how they would be affected. As a result a minor sub rosa “industry” sprang up in advising methods of tax avoidance — which is legitimate, whereas “evasion” is not.

“The Directive is mandatory and was implemented by the EU in cooperation with some non-EU member states, to ensure that cross border savings income is taxed correctly and prevent tax evasion,” Sene explains. “It applies only to savings income payments paid by a paying agent in one member state to an individual who is a resident of another EU member state, and does not apply where the paying agent and the payee are in the same Member State.

“It’s designed to work through an automatic exchange of information between the signatory states in relation to interest payments, and they must either exchange information or apply a withholding tax on relevant savings income.” Several states — including Switzerland, a non-EU member who required considerable diplomatic arm-twisting before she agreed to sign up to the ESD — have opted to take the withholding tax route, with elaborate formulae and timetables over the questions of exchanging information and how the tax will actually be paid. Banks in Gibraltar — as in several other member states — do not yet know who is the local ‘competent authority” (to whom savings tax information must be given).

From its inception, when jurisdictions whose economies rely on a strong financial services base saw the proposal as a threat to their structures, the ESD met with intense resistance. Within the EU several member states were doubtful starters, while Germany — when it was suggested that convoys of Mercedes Benzes with wealthy drivers carrying briefcases stuffed with Euros would hurtle down the autobahns to cross into Switzerland, Austria or Luxembourg — actually feared a serious drain on local cash levels.

As postponements and quibbles continued there were serious doubts that the Directive would ever get the green light. But eventually it has been implemented — sort of.
“The effects of the directive onthe local banking industry have been quite significant, as clients adjusted their position in order to mitigate its effects,” Sene tells me. “However, the whole process commenced more than two years ago, when indications that the ESD would take effect first became apparent.

Barclays as well as some of our other banks have successfully retained their clients in spite of the effects of the Directive.

“Within the banking industry the emphasis has been on ensuring that clients were aware of the Directive’s effects and that they obtained independent professional tax advice as to how they would be affected. Within Barclays we undertook a comprehensive communications programme which involved mailings and face to face contacts. “This impacted on our resources as we were inundated with enquiries from affected clients so that maintaining service standards within the ‘business as usual’ environment as well as servicing these enquiries was quite a challenge.”

Sene reckons that clients’ reactions to the ESD have been “quite diverse” and though he is too much a professional banker to say so, it is clear that some clients have tried to find loop-holes in the directive through which they — and their savings incomes — could wriggle.

“In the normal course of events our aim has been to understand the client’s needs and where relevant introduce them to one of our specialist teams who could meet their requirements, but as a guiding principle the bank has not developed or promoted products for the purpose of enabling clients to avoid the effects of the ESD,” Sene insists. But “having obtained their independent professional tax advice, some clients have opted to move their accounts to jurisdictions that offered other alternatives and some balances have been lost,” he admits. Gibraltar has a lot to offer as a finance centre, he points out, and Barclays as well as some of our other banks have successfully retained their clients in spite of the effects of the Directive.