The EC is proposing to extend its taxation of savings income directive, which targets banks, to catch investors it says are using life insurance contracts such as investment bonds to avoid tax.
Providers are lobbying hard against the plans, saying they already report rigorously and the changes would add bureaucracy and costs.
The directive, introduced in 2003, means if a person lives in one EU country and has an interest-bearing instrument in another, the institution in the other EU country must report that person to their home tax authority or withhold tax if they are in jurisdictions such as Luxemburg.
Under the plans, all life insurance contracts would be subject to the directive if they invest in interest-bearing instruments. Policies containing at least 10 per cent life cover would be exempt.
Friends Provident International technical services man- ager Brendan Harper says: “Life companies that trade cross-border into Europe already have to comply with quite onerous reporting requirements which makes the scope of using an insurance contract to evade tax illegally virtually impossible in most territories. This is another layer of cost and bureaucracy that the insurance industry at this time can ill afford.”
Skandia head of tax and financial planning Colin Jelley says: “We must not use a sledgehammer to crack this nut. We do not want to force companies to build massive new systems which would cost a fortune for a ridiculous amount of cases and trivial return. We already have an effective reporting system but under the proposals we would have to duplicate the process. These proposals are overkill.”
Hargreaves Lansdown head of financial practitioners Danny Cox says: “Offshore bonds could be an innocent victim again. This will put considerable extra work on insurers. This is ano- ther nail in the bond coffin.”
The plan will be voted on by the European Council in the summer but is expected to pass.