Eighteen funds have left Bermuda due to negative impacts tied to the European Union?s Directive on the taxation of savings income which came into force on July 1.

According to the Bermuda Monetary Authority, the 18 discontinued funds had a total net asset value of $4.47billion. At the end of the first quarter 2005, the total net asset value of funds in Bermuda was $166.50 billion.

The EU directive provides a mechanism for EU countries, as well as third-party countries aligned with the directive, to share information on the savings income of EU citizens not resident in the country where the account is held with their home governments.

In some cases, a system of tax retention through a withholding tax is also being implemented.

Bermuda and other financial services centres such as Singapore and Hong Kong are not directly affected by the directive. However the manner in which some countries, particularly Switzerland, have applied ?their home rules? has had unanticipated outcomes on funds and collective investment schemes which are domiciled in Bermuda but have paying agents located in a country subject to the Directive. A Bermuda domiciled fund could be caught within the scope of the directive if for example, its paying agent was located in Switzerland.

The Swiss home rules is perceived to be detrimental to funds because they would be subject to withholding tax.

?It was really a question of the goalposts moving against us in a way the industry never ever foresaw and therefore it did not prepare,? Bermuda Monetary chairman Cheryl-Ann Lister said. She adds however that many of the funds that that have departed are only moving domicile. They are not moving the administration off the Island.

?In some cases they are obviously putting a layer on top but by having very high standards in the area of administration, Bermuda is perceived as a strong jurisdiction in that regard and the service providers here are considered to be very good so although some are changing domiciles they are not moving administrators so in essence they will still have a Bermuda connection.?

Minister of Finance Paula Cox, members of her ministry and industry officials voiced Bermuda?s concerns about the impact of the rules on the funds sector to senior officials at the Swiss Federal Tax Administration in Berne, Switzerland last week.

Swiss authorities are due to respond to the submission as soon as the ?complex? issues were reviewed.