Jersey’s Teather

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I have been pondering why Jersey has opted for the route of legitimising what is generally seen as tax evasion within its territory, so providing a veneer of respectability to what is otherwise clearly unacceptable behaviour, both on its part and on the part of those who exploit its facilities. Such abuses are detailed in the Tax Justice Network's submission to the US Senate made last week and include things like sham trusts, redomiciliation of companies, protested cell companies and the like.

The answer came to me at Oxford last week, where I saw Richard Teather. Richard is adviser to the States of Jersey Scrutiny Committee on taxation matters, a role I held at one time and to which he is much better suited in the eyes of the Jersey establishment. They did, after all, make sure I was sacked. The differences in our approach are, perhaps obvious from this extract from his Institute of Economic Affairs book 'The Benefits of Tax Competition', where he says on page 81 that offshore tax evasion by rich individuals is:

a classic use of a tax haven ... in which a person resident in (or otherwise subject to the taxation system of) a highly taxed country places his capital in a tax haven where it can earn untaxed income. While there are many cases where the home country does not tax foreign source income (such as the UK's non-domicile exemption discussed above), most Western countries have a worldwide taxation system that seeks to tax the worldwide income of its residents (or all of its citizens in the case of the USA). This tax haven income therefore does not cease (legally) to become liable to tax merely by being earned offshore: it is still liable to tax and the investor has a duty to report it to his home tax authority. In practice, however, if the investor does not report his income, then the home country can have great difficulties in discovering and taxing it, particularly if the haven country has strong banking secrecy laws.

While I am not seeking to condone dishonesty or criminal activity, from an economic perspective this is merely another example of tax competition: indeed, it is often necessary behaviour in order to take advantage of tax havens. Without the willingness of some to engage in this sort of activity, tax competition would be much less effective and therefore reduce the benefits that flow from it for the rest of us.

I added the emphasis, because it makes clear what Richard is saying, and about which I suspect that he would be even more explicit if it were not for the fact that as a chartered accountant he had to add the caveat that began his last paragraph. He's saying tax evasion is a good thing from which society benefits. That's the only way in which his final sentence can be interpreted.

This is the man advising Jersey. They chose him. I know there were other much better qualified candidates for this post, and I'm excluding me from that comment. But they wanted someone with this frame of mind.

It's is further evidence that Jersey is deliberately pursuing a policy of legitimising what is seen as illegitimate elsewhere. What they don't realise though is that black may be white in Jersey, but that doesn't mean it has changed elsewhere, where it remains black. They might pretend to be compliant, but already they are being rumbled. And just for the record, so are all the other havens doing the same thing.