Supported by the Council of Ministers, I have today announced my intention to repeal those elements of Jersey’s corporate tax regime which were deemed harmful by the EU Code of Conduct Group. A proposal has been lodged to remove the deemed distribution and attribution rules with effect from January 2012. This means that “Zero-ten”, which means most companies pay tax at 0%, will be retained.
Jersey’s business tax regime has recently been subject to assessment by the EU Code of Conduct on Business Taxation Group (“the Code Group”). Throughout the formal assessment process it was clear that the concerns of the Code Group focused on the interaction of the deemed distribution and attribution provisions with the 0% general rate of tax that applies to Jersey resident companies. This view was supported by the findings of a review by the EU Council’s High Level Working Party on Tax Matters into the scope of the EU Code of Conduct on Business Taxation (“the Code”) in January 2011.
The Council of Ministers and I are confident that the evidence shows this positive action will result in Jersey’s 0/10 tax regime being considered fully compliant with the Code. We can then keep our existing corporate tax regime while also meeting the concerns of the EU.
Maintaining tax neutrality provides stability and certainty for businesses operating here and sends a clear signal that Jersey continues to provide a competitive tax system which will safeguard the island’s future economic well-being.
Treasury forecasts estimate this change will create a temporary cash flow effect from 2013/2014, which is not expected to be more than £10m in any one year. The repeal of the provisions is not expected to cause a reduction in the total tax take.
The EU Code of Conduct Group will formally consider the decision to remove the deemed distribution and attribution provisions later this year.
Read more below…
.jpg)
This i an interesting development, backed by interesting claims.
Leaving aside the fact that Jersey could (*as on so many other issues) have saved itself a lot of trouble if it had listend to my advice on this issue in 2005, advice which has proved the be exactly right, despite all the abuse thrown at me from within the island since then, let me add another note of caution now.
The claim that getting rid of the deemed distribution rules will satisfy the EU is a little rash. To put it another way: it may be wrong. Nothing is certain. It is just possible that this is all the EU requires, but Jersey has hung on vain hope about Europe before to its cost.
What the EU actually said was Jersey failed the first three parts of the Code. The Code has five parts:
1. Whether advantages are accorded only to non-residents or in respect of transactions carried out with non-residents
2. Whether advantages are ring-fenced from the domestic market, so they do not affect the national tax base
3. Whether advantages are granted even without any real economic activity and substantial economic presence within the Member State offering such tax advantages
4. Whether the rules for profit determination in respect of activities within a multinational group of companies departs from internationally accepted principles, notably the rules agreed upon within the OECD
5. Whether the tax measures lack transparency, including where legal provisions are relaxed at administrative level in a non-transparent way
Removing the deemed distribution rule clearly satisfies test 2. It probably clears test 1.
Test 3 is another issue altogether. Test 3 looks at the motivation for construction of the tax system as a whole: is the whole system designed to be abusive? Is it designed to offer advantages to those not present in the island.
This is, of course, reflected in my definition of a secrecy jurisdiction. Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
If it’s considered that zero/ten as a whole was designed to artificially induce relocation of transactions to Jersey when there is no economic substance to their being recorded there then getting rid of deemed distribution does not keep the EU happy. Far from it in fact. The system can still fail under test three.
That is why the EU quite specifically did not say that deemed distribution was the problem it was addressing when making its decision last November. That is also why it has not said getting rid of deemed distribution will not work.
It said Jersey has to correct three failures before its tax system is considered acceptable by the EU. It’s addressing two. It’s ignoring the third, entirely.
That could be very costly. Not just to Jersey but to ist international clients and so to Jersey’s long term reputation.
I think (although I can’t be sure) that Jersey’s tax system will fail the EU tests again when these changes are put to it. The system as a whole is designed in such a way that it is bound to fail test three on any objective basis.
I hope you have a plan in place for when that happens. You can’t keep having your tax system rules unacceptable internationally and keep your status as a well regulated place. But that’s the prospect you face.
Dear Mr Murphy,
Your note of caution is duly noted, but rest assured, 0/10 and the EU opinion on Deemed Distribution is something we consulted on at great length with many international experts (excluding yourself I’m afraid), and we are confident in the solution we have come up with. As you yourself commented on the 15th February in your own blog, in reference to our intended removal of Deemed Distribution, “there is no doubt that the new arrangement meets the EU’s requirements. I can’t argue with that”, so I find it strange that you are now trying to. That said, as you now seem to have changed your mind, I will answer your latest comments below…
Firstly, the removal of Deemed Distribution does satisfy the first 3 points of the code – it creates a more level playing field, without any difference in advantage to anyone, as our general rate of tax is 0% which applies to all companies. Regardless of this, Jersey is not in the business of what might be considered post box companies i.e. those with insufficient substance to justify their activity. International tax standards have progressed significantly in recent years such that domestic tax rules work against corporations shifting their profits to low tax jurisdictions without demonstrating adequate substance. Such ‘planning’ would be ineffective.
Additionally, as you bring up the motive of our tax system, to be clear, it is simply this – to provide stable, expert financial services alongside tax neutrality to enable global investment. For companies and individuals managing their affairs through Jersey, income is taxed in country of origin, and in the country of destination once capital is put to work – we simply ensure an additional layer of tax is not added. Many other ‘reputable’ countries provide the same situation with double tax agreements, and arguably not all of these are as transparent as Jersey. We are not, as you imply a “secrecy jurisdiction”, but a well-regulated, transparent, expert centre. Fortunately, you don’t just have to take my word for it – this can easily be established by referring to;
- The fact that we were one of first centres to be placed on the OECD ‘white list’ as having implemented internationally agreed tax standards
- The fact that we were invited to be Vice Chair of OECD Peer Review Group because of our high standing and reputation
- The fact that we received a favourable British Crown Dependencies Review, which established in an additional Deloitte report, that tax leakage was not an issue in Jersey, and that in fact Jersey supported the UK during the credit crisis, upstreaming billions of pounds to London
- The fact that we have been rated the top ‘offshore jurisdiction’ in the last 4 Global Financial Centres Index, as voted for by top professional practitioners and investors around the world
- The fact that we were rated as one of the best international finance centres globally by the IMF (September 2009), higher rated than the UK and US, in terms of adherring to anti money laundering standards.
- The fact that we were the first offshore centre to become a full signatory to the IOSCO Multilateral Treaty
- That fact that we have aligned ourselves fully with the highest standards of the 3rd EU Anti-Money Laundering Directive
- The fact that we are operating to the highest standards of CFT (Countering the Financing of Terrorism) guidelines
- The fact that we have operated under a ‘Fund Functionaries Supervision’ regime for more than 20 years
- The fact that we have no secrecy laws
Given all of the above, and also the fact that we believe that we now comply with the Code of Conduct criteria (as you yourself previously concluded in February), I find it extremely odd that you end by saying that we can’t have a tax system that is “unacceptable internationally”. Put simply, Jersey and it’s finance industry are endorsed and supported at the highest level – we not only meet international standards, we often exceed them.
Kind regards,
Philip
Senator Ozouf
What happens if the EU Conduct Group after this still deems our Tax Regime harmful?
Have you got a Plan B?
Regards
Lucy
Dear Lucy,
We believe that this is unlikely, for reasons given in my previous response to Mr Murphy. However during the recent comprehensive review of our tax system we thoroughly assessed many different options to ensure we were well prepared for any eventuality, and will continue to do so.
Kind regards,
Philip
Dear Philip
I note all you say, but note that actually all you have done is offer a list of superlatives, almost all of which were self awarded, or were awarded by organisations that actually approve of the existence of tax havens, such as the OECD ( which does so because it believes, wholly erroneously, that they add liquidity to the world’s financial markets).
The truth is that the same list could have been prepared for the whole world financial architecture in 2007, and look what happened.
You are kidding yourself, and the people of Jersey. Jersey is always referred to as a tax haven in the press, for good reason. It is exceedingly opaque. Show me where I can find a set of Jersey company accounts on public record, as of right for all entities.?Show me how I can find out who the true beneficial owners of a Jersey company? Tell me, very precisely, how much information you have ever supplied under a tax information exchange agreement. Tell me also in what form you supply information under the EU savings tax directive. Is it in printed form, so it cannot be used? In addition, tell me why you oppose the extension of that directive, and why have you so consistently and deliberately sought to undermine the EU code of conduct, which, as I rightly predicted, you fail to comply with, even now.
Please stop deluding yourself, and answer the real questions. Then we can have a debate. Until then you are simply playing games, at cost of the rest of the world, and to our democracy, which it is very obviously your deliberate purpose to undermine by denying tax revenues to our elected governments which are due to them. That is, of course, why you are listed as noncooperative by the UK. Are you pleased with that status? And perhaps you would like to explain why you think it has been given to you if you are so good, as you claim.
Or is everything that you say as hollow as Jersey’s future prospects?
Richard
Dear Mr Murphy,
Thank you for your response, which I have to say comes as no surprise. You refer to having a debate if I answer your questions – I would be delighted to have a debate with you but it is clear from every comment you make about Jersey the bias is so entrenched it would not matter what I or anyone said, you wouldn’t believe it. I would however like to take this opportunity to comment on the inaccurate statements made in your response.
In reference to the awards and endorsements Jersey has received, you call them a ‘list of superlatives, almost all of which were self awarded’. I am sorry Mr Murphy but Jersey cannot award itself reviews from the likes of the OECD, IMF, the Chancellor of the Exchequer or other independent bodies. All of the points I mention demonstrate Jersey’s willingness to comply with international standards – that is not self awarding praise, that is fact.
Secondly, it is well known, and is referred to in the Foot Review on the Crown Dependencies, Jersey contributes billions of £’s to the UK capital markets, so how you can say that places such as Jersey do not add to the liquidity of the world’s capital markets is beyond me. It is the tax neutrality which allows such funds to be collected and upstreamed, not any form of secrecy.
As regards access to information – as most reasonable people agree, there is a need for confidentiality in this world. That is not the same as secrecy. I ask you whether you would be prepared to publish all of your financial information for anyone to access regardless of the purpose for which that information would be used? I suspect not. And you need to remember that ultimate shareholders of companies are individuals too. Any tax authority with which we have an exchange of information agreement is able to request information precisely for the purpose of ensuring they can collect the right amount of tax. Indeed Jersey exceeds the requirements in this respect as the standard only requires the need to hold legal owner. Through the operation of its AML law, Jersey authorities hold or can access information on the ultimate beneficial owner and when asked we have provided it.
We received and fully responded to 39 requests for information up to the end of 2010 excluding the information exchanged under the EUSD and the information that can be exchanged with the UK under the DTA. Again your response will no doubt be ‘that isn’t very many and so it can’t be working’. Well in response to that, most of our agreements have only come in to force over the past two or three years – and not because of delays by Jersey but because the domestic ratification procedures in our partner jurisdictions take time (for example, we are still waiting on the Italians with whom we initialled a TIEA in April 2009). Because of this, requests have been concentrated in the last two years.
In my view TIEAs are a useful tool in fighting tax evasion. The reason why there are not thousands of requests is that tax authorities can encourage their taxpayers to volunteer the information as a result of having an information exchange agreement. Telling the taxpayer that they can get the information by asking Jersey, for example, but the penalty for not disclosing voluntarily will be higher is a very efficient carrot in my view.
I believe information on request is the right approach as it is properly targeted. To simply send a whole pile of often irrelevant information to a tax authority is inefficient, and would creates yet another layer of unnecessary, expensive bureaucracy. It is better for everyone to simply receive information that is of use to them. This is even more true of the tax authorities of developing countries who do not have the resource to sift through thousands and maybe millions of records of which the vast majority would not be helpful. The help those countries needs is more fundamental than swamping them with information that they cannot use as they don’t have the resource. You may be aware that the G20 asked the Global Forum to look at ways it could assist developing countries, on which we have been a party to the work of the Global Forum, and it is due to report on that later this year
On EUSD, we provide the information electronically. If you are interested, details of how information should be reported to the Jersey tax authorities can be found on our website. This information we receive is passed directly to the relevant Member State in electronic form.
Jersey does not oppose the extension of the EU savings tax directive. We are committed to move to automatic exchange of information under the terms of that directive – we signed the agreements on that basis. On the extension of this companies and trusts, again we do not oppose this. The EU has not itself finalised the directive and since we are not members of the EU we cannot have any influence in its development or lack thereof. As soon as the EU is ready to negotiate with us, and we understand from the EU Commission that they are not yet ready to do so, we will engage. That is not opposing any extension of the directive.
Now let’s turn to the Code of Conduct. You should bear in mind that Jersey’s involvement in the Code is voluntary – we agreed to engage in this process to maintain our good neighbour policy with the EU. That said we are taking action necessary to meet the Code criteria. As far as I am aware, the Code Group is not mandated to determine the rates of tax that a jurisdiction may apply.
You say that you rightly predicted 0/10 would fail, even now that we are intending to remove the deemed distribution provisions. May I refer you to your own blog of 15 February this year (the link is attached in case you are unable to find it) where you state that in removing the deemed distribution rules (I hope you don’t mind me correcting your typos):
‘There is no doubt that the new arrangement meets the EU’s requirements. I can’t argue with that.’
http://www.taxresearch.org.uk/Blog/2011/02/15/jersey-to-keep-zero-ten-but-with-the-abusive-bits-taken-out-and-an-unsustainable-budget-deficit/
But now you say that ‘as [you] rightly predicted, [we] fail to comply with, even now.’ It seems to me that you will find an argument to suit your cause even if it contradicts what you have previously said. And in terms of Jersey not being able to afford these changes, you are equally wrong – Jersey has no public debt and has sufficient reserves to cover a full year of tax revenues. We are far from bankrupt and there are not many countries who can claim the same.
Finally, with regard to your point about being listed as a non-cooperative jurisdiction by the UK, I presume you are referring to the Offshore Penalty Regime. The reason Jersey is a category 2 country is not because we are not cooperative – it is because we do not apply automatic exchange of information – that is not the same as being non-cooperative. Quite frankly I would not be happy if people used Jersey just to get away with a lower penalty for non-disclosure. Jersey is not, despite what you think, in the business of harbouring tax evaders.
If you would like any more accurate facts about Jersey, please feel free to ask.
Kind regards,
Philip
I think Dave Hartnett’s comments noted here http://www.taxresearch.org.uk/Blog/2011/05/27/the-isle-of-man-and-jersey-create-opacity-according-to-h-m-revenue-customs/ say all that needs to be said about your transparency.
There is none.
That’s the fact.
All the rest is rhetoric – most especially from the Foot Commission – an inside job if ever there was one, as any objective observer can note.
Carry on with your delusions OPhilip – you’re still running an economy that is not compliant with international regulation and where the deficit is out of control.
Those are the facts and you can’t alter them.
Which is why reform is inevitable, as I’ve always said, and why I’ve always been right.
“A cash flow effect of £10 millions per annum”?
What does that mean precisely? Or to put it another way – if I had one would I be in debt to the tune of £10 millions each and every year…
How do you spin such things to make it sound as though this was planned all along and that the economic well being of Jersey (i.e. the public) is somehow assured for the future as a result…
Shall anybody offer an apology for getting it wrong 10 million times or will this result in promotion and self-congratulation as per usual?
As I have asked before – are you sure that you are consulting with the right people because Richard Murphy has been offering his correct advice for free for years. Why did you ignore it in the past and why are you still ignoring him now?
C’mon Senator – stop taking the Mickey – or do you think that small-time dairy farming might be your true destiny….Is a career change in the offing?
Is there something wrong with your machine – my comment was pending but now it’s gone. Gremlin or censor Senator?
Dear Tom,
Apologies, I have just rechecked all my pending and have approved your last comment. As already stated previously, I don’t censor feedback (except for bad language that may be offensive to other readers), and will endeavour to reply as often as my schedule allows.
Kind Regards,
Philip
I wish Richard Murphy would stop slanging off the Channel Islands.
Reading his blog, its nothing but a collection of inaccurate slurs derived to create the illusion that Offshore Finance is the devil incarnate.
He ignores the business we generate for London and the reliance others have on our industry (a bit like our resident left).
So shame on you Mr Murphy shame!
P.S. Keep up the good work Sen. Ozouf, you’re well respected in the industry unlike your critics.
Ha ha.. Jez is Philip with another moniker.