The following press comment has been issued by Jersey Finance:
Jersey Finance notes the inaccurate comments made today by the TUC with regard to the UK banking sector's offshore activities.
There is no credible or practical evidence to suggest that international financial centres threaten financial stability. Jersey is a well-regulated jurisdiction which meets or exceeds all of the relevant international financial standards for financial stability and transparency expected from the world's leading financial centres.
Well regulated financial centres such as Jersey provide a broad range of services which are not related in any way to tax evasion. Under the EU Savings Directive all UK resident private individuals with assets in Jersey are subject to either full information exchange with UK tax authorities or withholding tax.
Furthermore, whilst Jersey adheres firmly to the principles of confidentiality for legitimate investors, Jersey has never had banking secrecy laws, and has implemented measures to ensure that it can co-operate with any country in the world when investigations are underway into criminal and fraudulent use of the global financial services system."
Who mentioned tax evasion? The TUC did not. They said:
There is no suggestion that anyone has broken any tax laws
That then leads one to wonder why Jersey threw in a lot of extraneous comment to which they press release by the TUC did not refer, but about which Jersey thought it worth commenting.
First it claims Jersey is well regulated. But as we all now know, the regulation in question was wrong and did not produce financial stability. So what is the benefit that Jersey is claiming?
Second, Jersey did contribute to the failure of Northern Rock amongst other things. If that was not an active contribution to financial instability in the UK what was?
Third, we all know tax evasion is not the only reason for using a secrecy jurisdiction: secrecy is as important. And as a matter of fact corporate disclosure in Jersey is non-existent: nothing can be found out about what any corporation does there, at all. It is also impossible to tell whether the very, very limited information about Jersey companies placed on public record has any bearing to reality at all since the use of nominees is so widespread.
Next, its information exchange is quite different in reality from what it claims in this press release. Just a handful of pieces of information have been exchanged with the USA under Jersey's longest standing information exchange agreement. No one can suggest this is effective information exchange. And elsewhere Jersey goes out of their way to reassure people they are as uncooperative as possible with exchange requests, and have the right to refuse them, which they clearly imply that they use. As they put it:
A high threshold therefore exists before the Jersey authorities will accede to a request under a TIEA.
Some of my tax authority friends might put it differently: the reality is that unless another state can prove it already knows the information it is seeking from Jersey then Jersey will not confirm its existence. That is not what I call information exchange. Jersey knows that, and makes that clear in its marketing offered to those who are concerned that their nefarious activities in the island might be discovered. Contrast that with the observations made above. I know which version I believe. I know which version the facts support.
Given these restrictions on securing data it does not need banking secrecy laws, any more than the UK does: we and Jersey construct them just as effectively (as the Swiss point out, regularly) using trusts and corporate nominee laws. So this is a completely pointless argument: even if technically correct it offers no substance to the debate.
But let's deal with the biggest indication of where Jersey really stands on the issue of openness, transparency, tax evasion and information exchange. That is its approach to the EU Savings Tax Directive (STD). The STD only exists for one purpose, and that is to stop tax evasion. It is otherwise pointless. That's what the EU says. They're right.
Under the STD most participant jurisdictions exchange information on interest income earned within their country which has been paid to persons resident in another EU member state with the government of that other country in which the recipient lives. It is widely known from research in the USA that when people know that information on their earnings is automatically supplied to their government the rate of compliance with tax disclosure rules increase from about 50% to the high 90s. So automatic information exchange is an incredibly effective weapon in tackling tax evasion.
Jersey was forced by the UK to become a party to the STD. It worked very hard to avoid it. There was only one explanation for that: it wanted to preserve the right of people to use its bank accounts to evade tax.
When forced to cooperate Jersey opted for the withholding tax option that is only available in the STD because of the refusal of EU states like Luxembourg, Austria and Belgium to expose the activities of tax evaders. Jersey joined that club of nations who quite deliberately refuse to exchange information but do instead withhold what have been to date relatively nominal sums from the interest paid which are highly unlikely to satisfy the tax liability of the recipient in the state in which they are resident, so allowing them to continue to evade tax in that place.
There is no reason whatsoever for a person to opt to have tax withholding unless they are evading tax in their home state. No one has ever been able to present me with an alternative reason for a person to opt for this arrangement. I would suggest that well over 90% of those opting for withholding do evade. More than half of those given the choice on whether to information exchange or have withholding applied to their Jersey accounts opted for withholding.
Jersey, of course, knows that. It even profits from it: it keeps 25% of the tax withheld. But worse it makes clear what its government's policy is: it is to build a financial services sector populated by the likes of RBS, Lloyds, Barclays and HSBC that deliberately and knowingly profits from tax evasion. That this tax evasion takes place is widely known: it is likely that half of those who declared bank accounts in the Crown Dependencies with those banks and HBOS that were subject to the 2007 UK Revenue tax amnesty were in Jersey. That means up to 20,000 accounts were used for tax evasion with those banks at that time. Another 80,000 accounts are no under investigation. There are 100 more banks to add to the enquiry. And of course, this is only for the UK. Tax evasion is, on the basis of this evidence, rampant in the island. Even a cautious extrapolation would suggests there are hundreds of thousands of accounts in the island on which the income is not declared for tax. Marty Sullivan at Tax Analysts has suggested there may be $500 billion invested in the island on which tax is evaded.
I am absolutely sure its government knows that. And it deliberately facilitates that evasion by refusing to enter into full membership of the STD. This is a choice it makes. It is choice in favour of tax evasion. Everything it says and does has to be seen in this light.
And everything I have said on the STD applies equally to Guernsey and the Isle of Man where massive sums are also held.
These places choose to facilitate tax evasion. It's a fact. Nothing they can say can change that, only radical reform of their financial services sector, meaning that there are full and transparent corporate registers and full, automatic information exchange on all income can change this. They can choose to do that. We're waiting for it to happen.
The UK can demand this. Now. We want them to. The ball is not just in St Helier, St Petr Port and Douglas. It is in London. It's time to kick it and destroy this secrecy forever.
Disclosure: I undertook the research for the TUC. I did not write the press release. The views expressed are my own. The TUC research did not relate to the issues discussed in this blog.
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Richard,
That then leads one to wonder why Jersey threw in a lot of extraneous comment to which they press release by the TUC did not refer, but about which Jersey thought it worth commenting.
Probably inserted as a pre-emptive measure to give the appearance (which is also reality) that no laws are being broken.
Rather like (in reverse) the tax-mongering crowd using words like “avoidance”, “abuse”, “dodging”, etc to imply that wholly legal means of lowering ones tax exposure is illegal.
Hope that helps.
Georges
Even the level of withholding rax in Jersey is a joke compared to the level of deposits & assets. It is easy to work out that Jersey levies savings withholding taxon on far less than 10% of interest generated on the island. Evading the EU savings tax using offshore companies & trusts is a given there…. but of course George and others will say that’s legal.
Mark
That’s because it IS legal ! Read the EUSTD for yourself. It does not apply (to date) to interest earned by companies, trusts etc., which is why the tax withheld on total interest earned in Jersey is so low. There are proposals to change that. When it changes, it becomes illegal. Until then, don’t expect anybody to voluntary levy taxes which are not due. That’s a recipe for mass lawsuits. That should be clear to anybody with half a brain.
Rupter
I know Mark
I’d suggest there is no one who knows the STD better
He and the EU know that Jersey tadx practitioners use these mechanisms to evade tax – that is exactly what he is saying and exactly what you know to be true
And it is why the STD is being revised – to put you out of business
Richard
Richard
You and Mark make it out to be illegal. Read the STD. It isn’t. Therefore its not tax evasion. Its tax avoidance, which is lawful. I would have thought that you of all people would know the difference.
The proposals to amend it are just that at the moment – proposals.
Rupert
You are right, it is legal.
But now read the UK anti-avoidance legislation re: offshore companies. And you will realise that all the income and gains in offshore companies for UK reisdents (domiciled or not) are to be assessed to the beneficial owner. So, if an offshore company is set up with the view of avoiding the ESD, then the beneficial owner has to declare all the income and gains. Now, offshore practitioners help create this offshore companies to hold the assets and the beneficial owner then “forgets” to declare that income. Are you saying that when someone creates such a company, it is not for evasion purposes?
NB: trusts are a different animal altogether. If they are discretionary, non-settlor directed and irrevocable, then I agree that the spirit of the law is respected.
Hum..
Remember though that Jersey deliberately created sham trusts in 2006 to facilitate fraud – which their internal email correspondence showed they knew would happen
http://www.taxresearch.org.uk/Blog/2006/06/15/jersey-passes-law-allowing-‘sham’-trusts-for-use-by-tax-evaders/
Because this law can apply to all Jersey trusts none can be considered a valid trust in my opinion
Richard
Hum..
You are half right, but only half right. The UK anti-avoidance legislation for years has attributed the income and gains of offshore companies owned by UK residents, whether domiciled or not, to the beneficial owner. But for non-domiciled individuals it was exempt from tax. That changed in the 2008 Finance Act and its taxable under the new remittance basis charging regime. But not of course if the nondom has elected to pay the £30,000 RBC instead (or at least to that effect). I don’t know any who have NOT elected to pay that RBC. I suspect that some individuals with less than £75,000 of offshore income or gains will have opted to suffer the tax as it would have been less than the £30,000 RBC.
If someone “forgets” to declare the income and gains from the offshore company then of course that would be tax evasion. No question about it. But I haven’t heard of anyone doing it.
You also need to bear in mind the high costs of properly running offshore structures these days. If its done properly, with annual accounts prepared and UK tax compliance work done, then the cost is unlikely to be much below £7,500 to £10,000 per annum in the Channel Islands, and most unlikely indeed to be less than £5,000 per annum. As a result, the islands see very few such low-value clients these days. Accordingly most non-doms being looked after in the Channel Islands will be generating much larger offshore income and gains and so would almost universally be paying the £30,000 RBC each year.
Interestingly, in the current economic climate with so little bank interest able to be generated (maybe 1.5% ?), its likely that the offshore income levels will be so low that many more of them will this year opt to pay the income tax due instead of the £30,000 RBC. Capital gains can still be sheltered by paying the RBC only in respect of the tax year in which the gains are actually realised.
Richard
I have never been entirely comfortable with that 2006 Jersey legislation for some of the reasons that you state. However, there are aspects of it which are OK and which are far less inflammatory than the aspects to which you rightly refer.
One of the most frequent uses of reserved powers trusts is in relation to their use to hold shares of the family business (or in the holding company which owns the family business). Not surprisingly there are instances where the settlor’s wish is for the family shareholding to be kept intact, without the trustees making a unilateral decision to sell it. This can often be an issue where some of the settlor’s children work for the family business and others don’t, and where there is therefore a clear potential conflict. It is therefore possible for a trust to be set up with the sole “reserved power” of the settlor being in relation to the shares of the family business, so that the trusteen needs to settlor’s prior consent before selling them. That does not make it a sham because the shares or the proceeds of sale of the shares remain trust property at all times and the trust’s irrevocability is not compromised. In your original article you refer to the settlor being able to cancel the existence of the trust, as if it never existed, and I would agree with you that this would be a sham. But the example that I use is not a sham. A valid trust exists at all times and the trust property never ceases to be trust property held upon the term of the trust, even if the settlor changes his mind and wishes he had never created it. A subtle but vital difference.
David
Absolutely, I did not mention all the ins and outs, but you are right.
So, for clarification sake:
1. The large majority of non-doms in this country have mostly been here more than 9 years. Just think of the number of Asians in the Midlands/Greater London with non-dom status. Are you telling me that they all report their shareholdings in offshore companies and declare the 30k?
2. What about the central control and management rule? Remember the De Beers and the Dimsey and Allen rulings? Even if one pays the 30k, corporation tax is most probably due. How much tax is declared and raised in the UK on this basis? None that I can see.
Hum..
I think this issue of central management and control is exceptionally important.
In a submission to the U.S. Senate Cayman lawyers Maples and and Calder said that the settlement of the US tax liabilities of the companies who have their registered offices within Ugland house was the client’s responsibility. However, in very many of those cases maples and Calder supplied the services of the directors. In that case they completely confuse the issue. The settlement of the liability in the USA was their responsibility. This will also be true of very many of the companies and arrangements created in Jersey. But, as Sen Carl Levin says, the lawyers in these offshore spaces left their eyes glaze over when it comes to such niceties as paying tax where it might be due.
You have hit the nail on the head. all that local lawyers or worry about in these places is their compliance with local legislation. They turn a blind eye to the consequences of the actions of their clients elsewhere and yet the whole basis of incorporation of those companies, and the whole basis on which those trusts are not taxed in those places, is that they are tax resident elsewhere. But those lawyers failed to ask where quite deliberately.
This is the basis of my hypothesis on the working of offhsore in my paper on the secrecy spaces of the world.
Search it out on this site. Published late August last year I think
Richard
Hum..
1. Who knows ? The dozens that I know and act for certainly do. Don’t forget that this is the very first tax year in which they have had to do so. Until March 2008 they only had to report remittances. Offshore income and gains were simply not reportable, let alone taxable, unless remitted.
2. I take your point but its not something I relate to. Its very rare these days to come across offshore structures which are in reality run by the “client”. The ones that I see and look after are robustly managed and controlled offshore and that’s the way my business has always operated. I accept that some out there are possibly not run in that same manner in which cases your point would be entirely relevant. No reputable fiduciary these days would accommodate such an arrangement though. Such structures are more prevalent from the 70s and 80s when people used Panamanian and Liberian companies with “nominee” (sic) directors and with general powers of attorney. Those days are long gone (thank goodness). The management and control point certainly did come up on everybody’s radar under the Dimsey v Allen case, as pointed out by you. Despite the publicity, there appear to have been very few (known) incidences of it resulting in a tax liability.
David
I would love to believe your second comment is generally correct ( I am not disputing your personal experience). I do not believe that is true. The reason is simple. Jersey would not have revised its tax law in 2006 in this was not their intent.
They knew exactly what they were doing: they wished to make deliberate sham trusts where the whole centre of operation was entirely outside Jersey and in a country where tax should have been paid. No other explanation for that legislation is possible. Indeed, Jersey’s civil servants showed they knew that in the exchange of correspondence that preceded that piece of legislation, which was published on this blog.
Richard
Richard
I cannot agree with your response to Hum.. I’ve been working in the offshore fiduciary industry for 25 years and I am 100% adamant that the sort of relaxed attitude to “management and control” by the “client” rather than by the offshore directors is not very prevalent these days. Yes, you will find it in Panama, Liechtenstein and Switzerland for sure, and perhaps in Nevis and the Bahamas, and probably also in Cayman and BVI to an extent. You won’t find it in the Channel Islands or the Isle of Man or in Bermuda, I’m quite certain. Of course it also used to be very prevalent in Sark and in Ireland, also in the UK under the old non-resident company regimes. To suggest otherwise is a red herring. Why ? The demands of PI insurers and of the regulators of fiduciary service providers in the Channel Islands and the Isle of Man wouldn’t permit it, for a start.
I’m also not sure that you are correct about the responsibility of the directors of Cayman companies for tax reporting in the US. My very limited understanding of the PFIC rules is that the reporting obligation falls on the US persons who have an economic interest in the offshore PFIC, which is what Maples & Calder are saying, I think correctly. But that’s not the same for trusts. A foreign trustee of a trust with US-connected persons has actual direct US self-assessment reporting obligations to the IRS in addition to the reporting obligations of the US-connected settlor/grantor or beneficiary. You might want to check that out.
You make reference to the situation in Jersey. I think the same applies. If a Jersey company is genuinely managed and controlled there, then for example if there is UK-source income arising then the directors have a self-assessment reporting obligation to HMRC. But not if there is no UK-source income arising. The sole reporting obligation in the UK would be on the UK-resident beneficial owner although the Jersey fiduciary should be ensuring that the client is indeed declaring it. Again, the situation is different for trusts. The Jersey trustees have all kinds of ongoing self-assessment tax reporting obligations for the income and gains of offshore trusts with UK-resident settlors and beneficiaries, as well as the 10-year charges for IHT.
If you think that it is the norm rather than the exception that offshore trustees in places like the CI and the Isle of Man are ignoring those self-assessment reporting obligations then you are wrong. Totally wrong. But you wouldn’t have been wrong 10-15 years ago. Far from it.
Richard
Re. your comment in item 13 above, if that was in fact Jersey’s intent at the time for introducing that legislation then it was probably a grave error of judgement. I would concede that. But as I mentioned earlier, I am also aware of very legitimate non-tax reasons for using that same or similar legislation. In other words, they might well have introduced new, useful and more flexible legislation but for the wrong reasons !
Rupert
Funnily enough I was in discussion with a PII lawyer at a party recently and he mentioned the nightmare that Jersey gave them. Compliance was not, in his opinion, your strong point.
And I notice a yet again this continual claim that everything I say would have been right 10 years ago but is wholly untrue now, but only in Jersey: it being true in all likelihood everywhere else.
I have to be honest: I have real problems believing that. What I see both Jersey’s legislation. What I see of the abysmal record of money laundering reporting in Jersey. What I see a Jersey’s refusal to co-operate in any meaningful way with other tax authorities. What I see from the comments made by those working in Jersey suggest to me that very little has really changed. and your veil of secrecy means that there is no evidence to the contrary to which I can refer.
So I am afraid that like much that I am offered, I accept that which you say with a pinch of salt. it is possible that you are right. But there is too much evidence otherwise to suggest that I should take it at face value. call me cynical if you will, but I am far from alone.
Indeed,I will reiterate what Stephen Timms said last night: Jersey still has a long way to go.
Richard
Richard
I re-assert that you are wrong. Very wrong. But I can’t prove it any more than you can prove you are right. I know the professionals who run these structures. I doubt if you do.
I still don’t believe that Timms said that “Jersey still has a long way to go”. I believe he said: ” Some places still have a long way to go, Liechtenstein for a start.” Not quite the same thing.
Richard
I have just re-watched the Panorama programme.
Stephen Timms said in relation to offshore finance centres (generally): “We’ve seen a good deal of progress. There is still more to come.” He later said: “There have been problems in some jurisdictions…Liechtenstein is certainly one.”
He did NOT say that there is still a long way to go in relation to Jersey. And that’s not wilful deafness. He didn’t say it.
Richard if you listen to the interview Stephen Timms says they get everything they need. He then says quote “there is still more to come”. Not ‘a long way to go”. Is this another example of the TJN not being accurate again?
[…] There’s more in that vein here. […]
[…] There’s more in that vein here. […]
As a recent resident of Guernsey and somebody involved in setting up a trust in Jersey I can say that both juristictions are active centres of tax evasion. They do this through the use of “fictitious” companies under changed ( local law not UK )trust law allowing the roles of the person who establishes the trust and the benefitiary of the trust to be the same person. They even allow the administrator ( whom is really the benefitiary -again through the “fake company device” to manage the trust.This is a total breach of the trust principles that the UK operates under to allow these offshore tax havens to run.These companies then have minutes produced for AGM’s that never took place and fake meetings that are typed up by the Trust companies and held as evidence gainst audit. I was involved with this it is fact . It is fraud and tax evasion against the UK by islands whom claim to be British and yet do even allow British people the right of residence . Time to redress this injustice and stop them bleeding our income.
[…] was interested in this comment on the blog: As a recent resident of Guernsey and somebody involved in setting up a trust in Jersey I can say […]
[…] was interested in this comment on the blog: As a recent resident of Guernsey and somebody involved in setting up a trust in Jersey I can say […]
I don’t understand this Joseph – if you have not reported your suspicion in such matters then you leave yourself at risk of criminal prosecution. Please explain why you have not done so.