Twenty-five funds representing a net asset value of almost $6 billion have discontinued in Bermuda as a result of unanticipated outcomes from the five-month-old European Union Directive on the taxation of savings income.

According to the Bermuda Monetary Authority, the total net asset value of discontinued funds now stands at $5.7 billion. This compares to the beginning of August when just 18 funds had discontinued representing a total net asset value of $4.47 billion.

At the end of the second quarter of 2005, the total net asset value of funds in Bermuda was $178.58 billion, the BMA said.

Under the European Union Savings Tax Directive ? which took effect on July 1 ? financial institutions in EU member states, certain dependent and associated territories of member?s states agreed to submit information about savings income received by EU citizens not resident in the country where they held their account.

Bermuda itself was never part of the directive, however it has since become apparent that funds and collective investment schemes that are domiciled here, which have their paying agents located in countries subject to the Directive, have been caught in its scope. This is due to the manner in which some countries, particularly Switzerland, have applied ?their home rules?.

The Ministry of Finance has carried out a needs analysis to identify the impact of the Directive on the financial services sector and yesterday Finance Minister Paula Cox said that the impact of the Directive has ?not been entirely negative? since the the trust sector has experienced a noticeable pick up in business and many paying agents which pay out funds to European clients are now Bermuda based.

However she said the impact on the fund sector has been less clear. Her ministry is actively meeting with various countries to determine how Bermuda-registered funds will be treated under their home rules. To date, the Ministry has received response from Swiss and UK tax authorities.

Minister Cox said: ?The Ministry understands that Swiss Tax Authorities consider that a fund which is regulated will be covered by the rules but funds which are exempted from regulation are out of scope.

?The UK authorities have advised that the UK home country rules define the nature of funds which are in scope very generally and are no criteria similar to the Swiss rules limiting the scope to regulated funds.?

The Ministry of Finance is also reviewing other issues related to the manner in which the Directive has been applied to other countries, she said.

?It would appear that some countries have determined that their funds are out of scope of the Directive because of the equivalent arrangements entered into between such countries and EU members to share tax information. Presently, Bermuda is negotiating a tax information exchange agreement with the UK Government. Bermuda considers that such an agreement may be equivalent for the purposes of the Directive,? she said.