THE States of Guernsey is consulting the local finance industry about whether it should drop the withholding tax arrangement.

The move comes as the Isle of Man treasury minister Allan Bell confirmed that that Crown Dependency intended to move fully to automatic exchange of information in its application of the European Union Savings Directive from 1 July 2011, when the withholding tax option currently available to customers having accounts with Isle of Man banks as part of a transitional arrangement will be withdrawn.

And although the announcement was likely to have been an attempt to gain an advantage over its offshore rivals such as Guernsey, in terms of international tax cooperation, local government officials have confirmed that the States had already been discussing the issue before Mr Bell’s announcement, as the island’s own arrangement was always considered to be transitional.

‘The international climate is changing with regards to exchange of information,’ said Mike Brown, chief executive of the States of Guernsey (pictured).

‘We are fully aware of those developments and have had the position under review for some time.

‘Guernsey’s commitment to the highest international standards in transparency is constant.’

The island’s current situation with EU member states is that since July 2005 financial intermediaries in Guernsey have collected a withholding tax, called a ‘retention tax’, on certain types of payment, principally interest, made to residents of an EU country, unless they opt to exchange information with the tax authorities in their country of residence.