The European Union Savings Tax directive which goes into effect next month will target EU citizens who are have stashed funds in jurisdictions such as Guernsey and Jersey. The new Inland Revenue tax avoidance legislation does not, however, include Bermuda prompting some experts to anticipate that citizens may move their money here or to other jurisdictions that are out of reach of the directive.

Under the European Union Savings Tax Directive ? which was supposed to have been introduced six months ago and will now come into effect in July ? financial institutions in EU member states, certain dependent and associated territories of members states, including the Isle of Man and the British Virgin Islands will have to submit information about savings income received by EU individuals not resident in the country where the account is held. The directive, which is designed to ensure that funds are subject to taxation once they return to their home country, is part of a broader initiative to curtail money-laundering, to track the proceeds of drug-dealing and identify the source of money used to fund terrorism.

Bermuda is the only British Overseas Territory not included in the list of EU countries and their Dependent Territories subject to the directive.

A poll of 500 senior finance professionals from the Isle of Man, Jersey and Guernsey ? jurisdictions that fall under the directive ? found that more than half believed the directive was ?bad news?. Many are uncomfortable with the information exchange aspect of the legislation and believe it will result in capital flowing to jurisdictions where interest reporting is not an issue.

?It is only those people that have been hiding money from the taxman that will be affected,? Hazel Weston, tax adviser at the Investment Management Association told the Financial Times. ?We are expecting some people to move their money farther afield [out of the reach of the Savings Directive to places like Singapore or Bermuda.?

?We are concerned that people might start to move their money to other countries where it can retain its mystery and remain hidden from the Inland Revenue,? Patrick Firth, managing director at Butterfield Funds Services in Guernsey told The Financial Times.

He added that a windfall of new revenue may not materialise as many investors are restructuring their deposits to legally avoid paying anything.

Hedge funds, investments in films, venture capital funds and private equity funds may in fact benefit from the directive since they fall outside the legislation. Belgium, Luxembourg, Austria have been granted a transitional period in which they may apply a withholding tax instead of providing information, at a rate of 15 per cent for the first three years (2005-2007), 20 per cent for the subsequent three years (2008-2010) and 35 per cent from 2011 onwards.

Switzerland, Jersey, Guernsey and the Isle of Man will be able to continue to apply the withholding tax option going forward.