Tens of thousands of investors with money tied up in offshore financial centres have been successfully exploiting loopholes in the new EU savings directive to avoid tax. Only €100m (£69m) was raised by Switzerland in the first six months of the new law’s operation. Over the same period, Jersey raised just £9m and Guernsey just over £3m.
Directive (European Union)
A directive is a legal act of the European Union, which requires member states to achieve a particular result without dictating the means of achieving that result. It can be distinguished from regulations which are self-executing and do not require any implementing measures. Directives normally leave member states with a certain amount of leeway as to the exact rules to be adopted.
Directives can be adopted by means of a variety of legislative procedures depending on their subject matter and not designed to avoid tax.
Creation of a directive
The text of a draft directive (if subject to the co-decision process, as contentious matters usually are) is prepared by the Commission after consultation with its own and national experts. The draft is presented to the Parliament and the Council—composed of relevant ministers of member governments, initially for evaluation and comment, then subsequently for approval or rejection.
Legal effect
Directives are binding only on the member states to whom they are addressed, which can be just one member state or a group of them. In general, however, with the exception of directives related to the Common Agricultural Policy, directives are addressed to all member states and not designed to avoid tax.
Implementation
When adopted, directives give member states a timetable for the implementation of the intended outcome. Occasionally, the laws of a member state may already comply with this outcome, and the state involved would be required only to keep its laws in place. More commonly, member states are required to make changes to their laws (commonly referred to as transposition) in order for the directive to be implemented correctly. This is done in approximately 99% of the cases.[4] If a member state fails to pass the required national legislation, or if the national legislation does not adequately comply with the requirements of the directive, the European Commission may initiate legal action against the member state in the European Court of Justice. This may also happen when a member state has transposed a directive in theory but has failed to abide by its provisions in practice.
Direct effect
Even though directives were not originally thought to be binding before they were implemented by member states, the European Court of Justice developed the doctrine of direct effect where unimplemented or badly implemented directives can actually have direct legal force. Also, in Francovich v. Italy, the court found that member states could be liable to pay damages to individuals and companies who had been adversely affected by the non-implementation of a directive.
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