|Savers with offshore bank accounts in the Channel Islands and the Isle of Man will have to pay a new tax on their interest - unless they reveal the contents of their holdings to officials in their own countries.
The change follows the decision yesterday by the islands to refuse the automatic exchange of information with European Union countries on non-residents' savings. The initiative is part of a drive by the EU to catch fraudsters and cheats.
Instead, the islands have opted to levy a "withholding tax", a concession the EU has given to Luxembourg, Austria and Belgium to preserve banking privacy.
Jersey and the Isle of Man announced their intention yesterday because the concession offered to the three EU member states had not created a level playing field and so threatened their competitive positions.
The tax rate for non-residents who do not agree to the exchange of information with their EU country of residence will be 15 per cent for the first three years, rising to 20 per cent for the subsequent three years and 35 per cent thereafter.
Three-quarters of the proceeds from the tax will go to the EU country where the saver is resident, the rest remaining with the British crown dependencies.
Guernsey adopted the same line last week, following agreement on the EU tax package reached by the EU finance council, Ecofin.
Allan Bell, Manx treasury minister, said that with varying standards for exchange of information,it was premature for the Isle of Man to make a general commitment to automatic exchange of information. "However, we are not ruling out bilateral arrangements where there is a clear mutual economic benefit."
Frank Walker, president of Jersey's policy committee, said the island's approach to the EU tax package had won the respect of the financial community within the island and abroad. "The EU's acceptance of our proposed reforms will offer reassurance to our finance industry and its clients," he said.
The debate about rules on taxation of savings across Europe has raged for more than a decade, culminating in firm EU proposals two years ago.
The UK and Germany argued for an exchange of information to root out tax evasion and fraud. But Gordon Brown has opposed the idea of adopting a withholding tax for the UK.