The arms of European Union tax collectors are long ? very long ? and they are reaching out to Bermuda.

But an attempt to interfere with a lucrative money pot on the Island is being contested by Government as it bids to protect what it sees as an important aspect of Bermuda?s international business.

It argues that exemptions given to other offshore banking havens, such as the Channel Islands, should be the right of Bermuda too.

Increasingly it looks like a case of ?Big Brother is Watching You? for EU citizens who are being targeted by sweeping new powers that allow financial information about their savings to be swapped among government departments of EU countries and some third party ?aligned? countries.

The closing down of tax-avoiding loopholes is the reason for the latest European directive, but countries and jurisdictions outside the EU are being roped in to varying degrees.

That?s where Bermuda fits in.

The Island is host to financial institutions that gather investments from agents across Europe and so is seen as being within the scope of the EU Directive on the Taxation of Savings Income by one of Europe?s premier banking centres Switzerland.

However, Bermuda?s Ministry of Finance isn?t so sure and has made a case with the Swiss tax authorities for the funds based on the Island to be given exemption.

After all it argues, the UK and other EU States have accepted that professional funds in offshore jurisdictions such as the Channel Islands are outside the scope of the new rules.

A delegation led by Finance Minister Paula Cox went to Switzerland in August to talk with their counterparts about the implications for businesses and financial institutes on the Island who have ?paying agents? in Switzerland.

Switzerland is not an EU State, although the landlocked country?s main business is with the rest of the continent and is reputed to be the home of one-third of the world?s savings.

In a response to its earlier meeting with the Bermudian delegation the Swiss tax authorities last week said that, under present rules, funds classified under Bermuda regulations as ?Standard and Institutional as well as Recognised Schemes? are within the scope of the directive.

But it went on to admit that until the directive?s provisions have been clarified it is willing to consider how Bermuda-based funds will be treated under the Swiss guidelines on the basis of other EU countries? rules in respect of Bermuda funds.

Acting Finance Minister Michael Scott said he would continue to press the matter and officials from his Ministry have met with stakeholders and industry representatives to discuss the Swiss response.

He added: ?The Government considers firmly that institutional/professional funds were not intended to be within the scope of the European Directive and is seeking the best arrangements to ensure that Bermuda registered Standard and Institutional funds are out of scope.

?The United Kingdom and other EU States accepted that institutional/professional funds in the Channel Islands and other countries were not in the scope of the directive.

?The Government is confident that the matter will be resolved in the very near future. Bermuda has developed a strong fund sector supported by internationally recognised fund administrators.

?To date only a limited number of funds appear to have been affected and all efforts will be made to ensure the continued growth of this important sector.?