Minister of Finance Eugene Cox is in London to find out what the UK government is going to expect from Bermuda when controversial European Union (EU) tax disclosure laws come into effect at the end of this year.

The new laws could lead to the UK asking Bermuda to disclose more information about EU nationals and their bank accounts in Bermuda.

Mr. Cox and financial secretary Donald Scott are in London for meetings with officials from the Foreign Commonwealth Office and HM Treasury on a piece of European Union legislation called `European Union's Tax Directive on the Taxation of Savings Income'.

The EU is trying to curb tax evasion by allowing governments to share information on savings held in other member states.The bill, which asks all European Union members and their crown colonies to disclose details of savings accounts of foreign European Union national to their country of origin so they can be taxed on the amounts by their home countries, has been ratified by the European Union, and could be put into effect as early as December 31, 2002.

But some members states are refusing to back the new system unless some key non-EU finance centres, especially Switzerland, takes steps equivalent to those the EU wants to introduce.

Bermuda is not a member of the European Union, but may be under some pressure by the UK to disclose information on European Union nationals which may lead to them being asked where the money has come from and ultimately may lead to them being taxed on the cash.

It is not known how hard financial centres such as Bermuda could be hit or how the Island's competitive position on bank deposits could be jeopardised if the Island moved to automatic information exchange.

The crux of the matter for other territories is to make sure that other competitors in the financial markets such as Luxembourg and Switzerland also sign up to the agreement.

It is not known if the Bermuda Government has a policy in place on the directive and no comment was available from the Ministry of Finance yesterday evening.

In a White Paper from the UK government in 1998 called Partnership in Progress, the tax agreement was outlined and the effects on the overseas territories included.

It states: "The EU is also considering a draft directive which would require member states to operate a withholding tax on cross-border income from savings by individuals, or to promote information on savings income to other member states. It is proposed that member states should commit themselves within the framework of their constitutional arrangements to ensure equivalent measures are applied in dependent or associated territories."

In a short statement yesterday Government Information Services said the Minister of Finance and Mr. Scott were in London to meet with officials from the UK government.

"The primary purpose of the meetings will be to discuss matters of mutual interest relating to the European Union's Directive on the Taxation of Savings Income," the release said.

It is understood that unlike some other British dependent territories, Bermuda has not yet had an ultimatum from the UK government demanding that it comply with the ruling - or face bad publicity and possible British sanctions.

So far Jersey and Guernsey have shown concern over the controversial tax directive. Events came to a head in April when UK Paymaster General, Dawn Primarolo, issued an ultimatum to the Channel Islands to comply with the EU code - or face penalties.

But the island of Jersey has concerns that countries such as Luxembourg and Switzerland have not agreed to the proposals and this would heavily impact on their economy and the exempted companies which register there.

The European Union Commission has been charged with negotiating a deal with Switzerland and five other countries - including the US, Monaco, Andorra, Liechtenstein and San Remo - by June, but formal negotiations with Berne have not started yet due to Swiss insistence on linking the tax talks to a number of other issues.

The United States is expected to agree on tax information exchange.

Switzerland has offered to levy a withholding tax on savings of EU residents as a way to solve the deadlock, but it refuses to give up its banking secrecy as do Austria and Luxembourg.

Britain and the Netherlands, which both have special tax status in dependent territories such as Bermuda, are allegedly also reluctant to agree on the new EU system until the EU has a deal with the Swiss, according to recent press reports.

The effectiveness of any measures agreed by other financial centres and the final wording of legislation will only be decided after a unanimous vote. Once the rules are in place EU members will have to provide information to their partners on non-resident savings.