The UK Treasury has approached the Ministry of Finance about Bermuda adopting measures to bring it in line with the EU?s Directive on the taxation of savings income.

Minister of Finance Paula Cox said her Ministry is moving to clarify issues stemming from the Directive with the aim of protecting Bermuda?s economic interests.

However Opposition leader Grant Gibbons told the House on Friday the directive had serious implications for Bermuda?s fund industry which is worth nearly $160 billion

He said up to 100 funds had already quietly moved out of Bermuda because of the tax threat.

?There needs to be some clarity on how Government is dealing with this,? he said.

Dr. Gibbons said the Caymans had cleverly negotiated out the major part of their fund business from the stringent measures and he feared Bermuda could lose further business to jurisdictions such as the Caymans and the British Virgin Islands.

He said one top lawyer had said almost all Bermuda?s funds would be affected and it could result in a significant proportion of them leaving.

?It has the potential of affecting our banking and trust business.?

Ms Cox replied that 90 funds had left, representing 1.7 percent of the total fund sector and she pointed out there were many more strings to Bermuda?s bow with investments, trusts, insurance and banking.

She said the Caymans was in a totally different position because they had been affected from the start while Bermuda had originally been left out.

Ms Cox said Bermuda did have concerns and was taking action.

However Dr. Gibbons said the situation about funds leaving could be worse than thought because fund managers did not have to notify the Bermuda Monetary Authority funds were leaving if they were going to an approved jurisdiction.

Under the European Union Savings Tax Directive ? which came into effect this month ? 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.

However on Friday, Minister Cox told Parliament that HM Treasury has approached her ministry to enter into discussions about Bermuda?s adoption of similar measures to give effect to the directive here.

?Government supports the principle of fair tax practices and therefore is open to exchange of tax information agreements with other jurisdictions where there is a mutual benefit for both parties to the agreement,? Minister Cox said.

The Directive took five years of negotiations within and outside of the European Union to be developed. The third-party agreements negotiated with non-European Union members allow the jurisdictions to charge a withholding tax rather than exchange information.

Belgium and Luxembourg are the two countries within the EU that have insisted on preserving client confidentiality and have as such negotiated the right to levy withholding taxes which will rise from an initial 15 percent to 35 percent by 2011.

However some European countries such as Switzerland and Ireland have already included Bermuda in the scope of the directive and are withholding full 35 percent tax immediately thus putting Bermuda funds at a considerable disadvantage.

While Bermuda and other financial centres such as Singapore and Hong Kong remain outside of the directive, Minister Cox said the long process of negotiation resulted in a ?complex set of rules which have had unanticipated outcomes? for funds and collective investment schemes.

?The upshot is that even though Bermuda is outside of the Directive, the manner in which some countries have applied ?their home rules? which give effect to the Directive has impacted negatively on funds domiciled in Bermuda but whose paying agents are located in a country subject to the Directive, for example, Bermuda domiciled funds whose paying agents are located in Switzerland or Ireland,? she said.

Bermuda?s Government is monitoring the developments very closely and has consulted extensively with relevant local stakeholders including banks, insurance trusts and fund managers.

?It is apparent that an inconsistency in the application of ?home rules? to funds domiciled in Bermuda has created uncertainty in our funds sector,? the minister said adding that the Swiss position has been flagged as ?most problematic? at this time.

While the initial position taken by all parties until mid-June was that the preferred position for Bermuda from a national perspective was to remain outside of the directive, the minister told Parliament that in the last two weeks the finalisation of various countries home rules has changed significantly resulting more ambiguous situation that are not helpful to Bermuda?s mutual fund industry in terms of business planning.

While other areas of the financial services sector are not affected in the same way the Minster said there is no one size fits all solution.

?Banking, trusts and insurance seem not to fact the same challenges. However recent policy shifts in Europe have resulted in these sectors coming under more comprehensive examination.?

Her ministry is now moving to clarify the positions with relevant overseas authorities through the assistance of the UK government. She told Parliament that steps are also being taken to make direct contact with relevant authorities in case a higher level of action is required.