The UK Government faces being sued by its own overseas territories over the European Union Savings Tax Directive.
The government of Gibraltar has taken legal advice on whether it can bring a case against the UK and the European Union over the imposition of the directive, which was agreed by all 15 member states on 4 June after six years of negotiations.
The Cayman Islands has also questioned the "legitimacy" of attempts to compel the Caribbean overseas territories to comply with the savings tax directive, and took a case to the European Court in March. The court told the Cayman Islands its grievance was with the UK not the EU, as it has no power to enforce its writ outside the EU.
Gibraltar has been an associate member of the EU since the UK joined in 1973. The chief minister of Gibraltar, Peter Caruana, told The Independent on Sunday the territory had sought legal advice on whether the EU has the right to impose the directive. He is angry about the UK's refusal to grant Gibraltar a choice between adopting a withholding tax or agreeing to exchange information about bank accounts, as is required under the directive.
Mr Caruana would not reveal the conclusions of the legal advice, or say if Gibraltar had discussed joining with other overseas territories affected by the directive - the Cayman Islands, the British Virgin Islands, Anguilla, the Turks and Caicos Islands, and Montserrat.
Mr Caruana said Gibraltar was considering several options but complained it had been "shut out" of negotiations on the directive. From 1 January 2005, 12 of the EU's 15 member states will exchange information about investments and bank deposits they hold from residents of other EU states. However, for a "transitional period", Belgium, Luxembourg and Austria can apply a withholding tax enabling them to preserve investors' holdings confidentiality.
The UK and Netherlands have pledged to adopt the savings tax directive in their dependent and associated territories, which means resident EU investors with investments and bank deposits will be subject to it. Chancellor Gordon Brown has promised to ensure the Cayman Islands and other dependent territories, including the Channel Islands and the Isle of Man, would implement the directive even though this was not required under EU law.Reuse content