The Tax Justice Network is holding events in Jersey later this week. The following adds some explanation on the significance of the island — and its total inability to cope with its own financial services sector.
The data
|
89,300 |
Jersey in Figures 2007 |
|
|
Banks |
47 |
Jersey Finance Quarterly Statistics December 2008 |
|
Cash on deposit |
£206 billion |
Jersey Finance Quarterly Statistics December 2008 |
|
Other investment funds |
£260 billion |
Jersey Finance Quarterly Statistics December 2008 |
|
Total funds |
£466 billion |
Calculated from the above data |
|
Total number of investment funds |
3,129 |
Jersey Finance Quarterly Statistics December 2008 |
|
Population supporting each bank |
1,900 |
Calculated from the above data |
|
Population supporting each investment fund |
28 |
Calculated from the above data |
|
Bank deposits per head of population |
£2,306,830 |
Calculated from the above data |
|
Investment funds per head of population |
£2,911,534 |
Calculated from the above data |
|
Total funds per head of population |
£5,218,365 |
Calculated from the above data |
|
Annual revenue of States of Jersey (2008) |
£630 million |
States of Jersey Budget 2009 |
|
Annual spending States of Jersey (2008) |
£669 million |
States of Jersey Budget 2009 |
|
Jersey State Reserves |
Up to £600 million |
http://www.statesassembly.gov.je/ documents/propositions/223-48242-24102006.htm |
|
State reserves as a proportion of total investment assets in the Island |
0.13% |
Calculated from the above data |
|
Average cash per bank |
£4.38 billion |
Calculated from the above data |
|
State reserves to average funds per bank |
13.7% |
Calculated from the above data |
The conclusions
The Jersey government has annual income of about £600 million.
It has reserves of about £600 million.
There are bank assets of £206 billion in the Island spread over 47 banks at an average of £4.38 billion for each of the 47 active banks.
Each bank has on average more than 7 times on deposit the sum that Jersey has available to deal with any failure of any sort in its financial system.
It is obvious Jersey could not ever support a banking failure in its territory.
Bank failures happen — the failure of Kaupthing Singer & Friedlander in the Isle of man in October 2008 may cost the government of that Island up to £400 million[1].
It is very obvious Jersey cannot afford the risk that might be taken in its banking system.
Why the UK should be worried
Jersey cannot afford the risk in its banking system.
17 of Jersey’s banks are British[2]. They are likely to be its biggest banks.
Any risk in Jersey gets transferred straight back to the UK in that case.
And that means the UK government is likely to pick up the tab. Which actually means the UK tax payer is going to pick up the tab.
So, Jersey is offering high risk light regulation to banks, and the opportunity to tax avoid or tax evade to the customers of those banks (which is the only reason why they’re there) and yet the UK tax payer is underwriting the risk.
Where is the logic in that?
The UK has a duty to shut down Jersey on behalf of the UK taxpayer. And it can do so — it is part of the Duchy of Normandy, ruled by Westminster on behalf of the Queen.
Additional Facts
Swiss Bank UBS sells all its services to its 20,000 UK investment clients through Jersey. It has at least £37 billion[3] under management in 3,000 funds in the island[4].
TUC research shows Jersey is likely to be the single biggest tax haven servicing the UK economy, bigger than Switzerland that comes next. Direct losses from 2005 to 2008 from the EU Savings Tax Directive alone were likely to be £91 million — but the funds covered by the Directive are a tiny proportion of total funds. If the non-disclosure pattern of behaviour found in accounts covered by the Directive is repeated across all investment funds held by UK residents in the Island the total loss almost certainly exceeds £1 billion a year. We repeat — that figure is for Jersey alone.
That loss is greater than total benefit fraud in the UK each year.
What can be done about it?
The surprising answer to this question is “quite a lot”. We can demand that:
- Abandon the withholding tax option under the EU Savings Tax Directive
- Commit to the proposed revisions to the EU Savings Tax directive tabled November 2008
- Commit to making multilateral information exchange agreements, on demand
- Match the UK's requirements for company disclosure on public record at modest cost
- Regulate all hedge funds
- Commit to determine the true location of management of all local registered companies and trusts and to providing this information to the jurisdictions in question
- Permit regulation of banks in cooperation with the regulator of their parent company jurisdiction
Whilst the UK could:
- The UK can lower the threshold at which products may be shipped into the UK without VAT being charged. This currently stands at £18. Jersey has exploited this and vast numbers of DVDs, computer games, cosmetic products, eye care products, and more, all of which should have VAT charged on them in the UK, are shipped from the UK every day to be put into envelopes in Jersey to be sent back on the next boat. The Treasury says this cost the UK at least £80 million a year, and many think it might cost a great deal more.
- We could deny corporation tax relief on all payments made by UK companies to their subsidiaries in Jersey and other tax havens where it can be shown that the subsidiaries in question have no or very few real employees, own intellectual property that they did not generate themselves within the territory in question, are intermediate financial structures used solely for tax advantage or cannot be demonstrated to have any real commercial purpose. Because of the current secrecy surrounding tax haven subsidiaries we do not know the amount of tax lost in this way, but we do know that just the big four banks in the UK have 170 subsidiaries in the Island — and it’s very hard to say they do not save tax as a result.
All this is possible
Now all we need to know is when.
[1] http://www.theherald.co.uk/business/news/display.var.2489908.0.isle_of_man_poised_to_confirm_icelandic_bank_compensation.php
[2] http://www.jerseyfinance.je/_support/uploadedFiles/Quarterly%20report%20for%20period%20ended%2031st%20December%202008.pdf
[3] http://www.guardian.co.uk/business/2009/feb/25/ubs-tax-investigation
[4] http://www.ubs.com/1/e/financial_intermediaries/jersey.html
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Richard
Some very interesting points here. I’d like to add some observations.
1. Offshore banking per se is clearly problematic. But actually it doesn’t bring huge revenues to offshore finance centres. The real value is added from high-value services such as fund administration and fiduciary services, not from a 0.5% interest margin on deposits.
2. We have seen that very few jurisdictions can actually afford to bail out all of their banks which operate there. The UK is bailing out UK banks, but its not offering to bail out UK subsidiaries of foreign banks. That’s the duty of the parent bank overseas. So is that not the same position with the offshore finance centres ? All of their banks are non-local. Why should Jersey be expected to bail out the Jersey subsidiary of say a German bank any more than the UK would be required to bail out the UK subsidiary of a German bank ? Surely the answer is for all banks who want to operate offshore to be structured as branches rather than as subsidiaries ? If this deters depositors due to exchange of information then that’s a result isn’t it ?
3. Re. your numbered points under “What can be done about it?”
– 1 is inevitable and should have happened already. Impossible to justify.
– 2 is inevitable and unavoidable
– 3 has to happen
– 4 is meaningless as the UK has no beneficial ownership disclosure and accounts often don’t need to be either audited or filed.
– 5 is inevitable
– 6 is really not an issue as 95% of these are clearly properly managed and controlled by their regulated directors and trustees. Any that aren’t shouldn’t be in existence anywhere.
– 7 absolutely correct
It leaves me to conclude that the island has little to be concerned about if the regulated financial services providers are doing things properly as the vast majority are. Those that aren’t should be allowed to be in business anyway, so if it means Jersey PLC taking two steps backwards to take three steps forward then where is the issue ? Maybe 10% to 20% of the business disappears, resulting in job losses, but if its work that shouldn’t be there anyway then so what ? Most importantly it would mean that those regulated service providers and institutions who can (and already do !) adhere to the required standards can be left alone to carry out their work without being continually tainted by others operating to far lower standards.
Re. what the UK could do:
1. There is no appetite for the UK to do this. If there was then it would have happened already. It achieves nothing at all if it ends up costing the UK more to collect the VAT due than the value of the VAT itself on such low-cost items. But equally on the other hand it is hard to defend that particular industry.
2. Not an issue as far as I’m concerned and is hard to defend. Disallowing such payments in principle until and unless a bona fide commercial argument is made for the tax relief is perfectly reasonable.
All of these measures would re-shape the offshore industry and inevitably change it for ever, but in a manner which would mean that those who remain in it, adhering to high standards, would become far more globally acceptable and respected. That in turn will enable the high quality jurisdictions to attract high quality, legitimate, fully transparent offshore work which won’t go to lower-calibre jurisdictions. Those who play the right game now will emerge even stronger than ever, albeit in a “new improved form”.
I have no problem at all with that.
2.
And by the way the Duchy or Normandy does not have the power to intervene except in cases of bad government within the islands. It cannot intervene otherwise. That principle has been established since 1066 or 1204 depending on who you read, and the islands’ own special tax status was enshrined within the relevant constitutional documents.
Whether or not acting irresponsibly to third party jurisdictions in relation to tax evasion is a case of “bad government” is highly debatable, but the UK itself would be very hard-pushed to pursue that particular point for its own benefit alone, given the historical facts.
Rupert
1) If business in Jersey can survive openness – I will not, and cannot complain
2) 1066? Where’s the text? 1204 – not the treaty of King John again! No one has ever seen it. Stop living in cloud cuckoo. We imposed the EU STD and the EU Code of Conduct. You have no choice – like a local council you have to do what is demanded of you. And that’s just about what you are.
Richard
Well it is pretty obvious from reading this that Richard and Christopher want Jersey destroyed and whoever turns up to their meeting next week can only have the same objective. But the arguments they are putting against the Island and the so called power of the UK is at best, just wishful thinking.
Colin
Wrong
We want to stop you destroying us
And Jersey (the real place – not the financial services companies located there) and the poorest nations of this world
You just want to continue free-riding on them all
But as Rupert says – Jersey could survive – it will just be very different
Do you really think any part of the financial services industry will avoid massive change as a result of this recession?
Why shouldn’t Jersey?
Richard
Richard
I can’t agree with you on the constitutional point. The EU Code of Conduct and the EUSTD were not imposed on the islands. The governments of the islands decided to adopt that legislation in response to international expectations but it was NOT imposed upon us. It is extremely debatable that it could ever have been imposed on us against our will.
Your own of our constitution would cast aside 800 plus years of historical acceptance and recognition of the constitution by the UK Government. It is fact, but fiction, that the Channel Islands are part of the Duchy of Normandy which conquered Britain, not the other way around. We are not a “local council” of the UK and no Channel Islander will ever accept being treated as such.
If anybody is relying on ignoring the constitutional position to steamroller legislation through then I guarantee you that independence for the islands would occur. Far more practical to encourage the islands to voluntarily adopt appropriate legislation than to ignore the constitution. The latter would never succeed.
Rupert
The 1973 Royal Commission (a.k.a. the Kilbrandon Report) stated as follows: “the United Kingdom Government are responsible for defence and international relations of the Islands, and the Crown is ultimately responsible for their good government. It falls to the Home Secretary to advise the Crown on the exercise of those duties and responsibilities. The United Kingdom Parliament has the power to legislate for the Islands, but it would exercise that power without their agreement in relation to domestic matters only in most exceptional circumstances”.
“[The UK] Parliament does have power to legislate for the Island without their consent on any matter in order to give effect to an international agreement”
Source: Hansard, House of Commons Debates, 3 June 1998, cols. 471 and 465.
This really seems fairly unambiguous. The 1204 ‘agreement’ remains undocumented and lacks authority. Kilbrandon is probably the most authoritative base from which to work.
Best wishes
John
You cannot blame Jersey for the World Recession. Very poor USA and UK onshore regulation seals that one.
I’m from Jersey (from a real, non-evading, Jersey family, just for the record!), and would not be popular back home for voicing the following. Having worked in brief stints for a couple of island firms heavily involved in trust work, I find the comprehensive systems they have developed for their tax-avoiding clients quite shocking in scope and blatancy. The guilt of individuals working in the area is mitigated by the dual comforts that if they did not do their job, then someone else would, and if Jersey did not provide these services, other offshore centres would not stop. That is, if they are capable of guilt, or bother giving it a moment’s consideration, neither of which are often the case.
It is disgraceful that the Island should have spent so many years scooping up the rewards of a UK infrastructure. However, Richard, you suggest that the Witholding Tax Option be disposed of. Will this not become irrelevant when the 35% rate of tax is introduced under the EU Savings Tax Directive from July 2011? That 5% difference is certainly not going to make setting up a trust in Jersey, with the significant set-up costs and trustee fees involved, worthwhile, is it? This new rate of tax will surely make it inevitable that Jersey will have to opt for the Information Exchange scheme instead.
Finally, how are inheritance tax and capital gains tax dealt with under the EU directive, given that Jersey has zero of both? Would appreciate better understanding all this – if you had a moment to respond, I’d be very grateful.
John
I’ve heard that view of Kilbrandon mentioned frequently and there are obviously some parties who much prefer the Kilbrandon view to take precedence over the 1204 view. But on the other hand the 1204 view is clearly not without some considerable weight, seeing as the islands operated under it for 769 years before Kilbrandon. Its rather like the difference between case law and statutory law.
Tom
Unfortunately you must have veen working for the wrong trust companies but I’m also concerned that you seem to be confusing tax avoidance with tax evasion. The first is lawful whilst the latter clearly isn’t.
The 35% ultimate withholding tax under the EUSTD is of course designed to ensure that nobody is prepared to suffer it. I think it will be automatic exchange for all well before it ever reaches 35%. That situation already exists in Belgium today. Belgian residents are taxed at 15% on their investment income but if they have a Luxembourg bank account then they suffer 20% Luxembourg tax at source and have to reclaim the surplus 5% if they want it back !
The EUSTD was only ever designed to tax income, not capital gains nor inheritances. Indeed many EU countries don’t tax capital gains at all in many instances, while in some countries inheritance tax is payable by the donor and in others by the donee. It would seem impossible to extend the EUSTD to capital gains and inheritances. Mind you, with interest rates at 1% or less there is no longer much income left to tax under the EUSTD !
Rupert
I assure you that you are wrong re the STD and Code of Conduct
Please do remember I advised Scrutiny on these issues
They were imposed virtually at the point of a gun – or more accurately with the threat of withholding on all payments to the Island if there was no cooperation
It was in UK Finance Act 2002 if I recall correctly
Pierre Horsfall caved in with bad grace
Your version is part of the pure fiction Jersey likes to fabrciate about itself
John and I are, I am afraid for you all, rather closer to the truth 97% of the time
Richard
Tom
STD will never cover IHT
Gains are not in this time round either….we tried but it’s a step too far….for now
It will happen
35% does nopt solve the problem
This leaves the UK with 26.25% tax when 40% is due since Jersey will get 8.75%
That gives plenty to target still from the UK angle
Anbd then there are trusts and companies….
Richard
John
Many thanks
How is it you and I know this but Jersey does not?
Strange, isn’t it?
Richard
@Richard Murphy
Thank you very much for a prompt and informative response. The reason I made the comment on the 35% rate, though, is that I would have thought that this would not make it worth anyone using Jersey to avoid tax, since the amount they pay would not be much different, except in gains (thank you for clarifying that) – why would they not then approach the Cayman Islands or Dubai, out of EU jurisdiction? I realise that if they did use Jersey, the UK would continue to suffer, but my point is that from 2011 it will be far less advantageous in its own right; let alone when compared with other locations.
And when it comes to the G20 summit in London, what action can they collectively take? Economic? Legal?
Many thanks for a very informative blog – read it regularly, and it’s proven an invaluable resource for research for a political society at university.
@Tom
P.S. Further to that, how on earth can you tackle trusts? I imagine companies are rather easier, but they’re also rarer as tax avoidance vehicles in Jersey in their own right. Unit trusts seem to be most in vogue in the Island at the moment (or at least they were when I did these experiences in 06/07) – I hardly saw anything else when working at these firms, nor did the regular employees while I was around, except the odd startlingly complex limited partnership scheme involving multiple trusts, and companies as partners (at least as the general partner). The dependence diagrams involved in these things are tremendously complicated – they are, while in a technical sense very ingenious, extremely obscure.
Richard
John and you may think you “know it” but you ignore 700-plus years of history prior to Kilbrandon. Are you seriously trying to say that the UK left the islands to their own devices prior to Kilbrandon without any legal foundation for being required to do so ? I think not. Raise that one in Jersey later this week and you and John might well struggle to leave the island in one piece !
You also fabricate the truth. It is a fact that the UK did not legislate for the islands re. the STD and Code of Conduct. You can dress that up any way you choose (and no doubt you will) but whether a gun was held to the heads or not, the UK did NOT legislate for the islands. It never has and that remains the case. We are not a county of the UK and, unlike any UK county, we have the absolute right to declare UDI from the UK if it came to it. I’d personally be strongly against that, but don’t under-estimate the strength of feeling that would result from the UK forcing something unacceptable onto the islands. Far better to reach an agreement wherever possible, for the benefit of all parties.
You said none of the Government is attending your visit, but isn’t Deputy Montfort Tadier (a registered member of the TJN) and Geoff Southern attending your anti-Jersey finance seminar this week?
Montfort Tadier is a member of the anti-finance brigade or ‘enemies of Jersey’ which Frank Walker used to refer to them. Now thats interesting.
Sara
Frank called me that, and I’m one of the best friends it has
Not of those non-Jersey finance people who occupy and abuse it – they’re not my friends
But to Jersey I think I’m a real friend. Real friends say the things friends don’t want to but need to hear
Richard
Rupert
So you ignore facts
You ignore what the UK has found
And you prefer to believe a mediaeval fantasy
I’d say that means you’re ideally suited to work in the Jersey trust industry, built as it is on a mediaeval fantasy that requires disbelief in reality
Richard
Tom
Rupert is wrong re 35% tax meaning all will data exchange
That is still a saving for some
And as many know – if the capital in an account is itself evaded you could apply 100% withholding on interest and people will still accept it
Rupert does appear to be a straight guy – but there are villains out there, as we both know
Re trusts – they have to go on public register in the end – nothing else for it
It will happen
And Rupert is also wrong about the STD etc not being imposed on Jersey – they weren’t directly of course – but the threat of withholding put itn o UK law had the smae effect
Richard
Tom
The same effect yes, but the fact of how it came about is crucial. The UK did NOT legislate for Guernsey and no precedent was set.
Richard
Since when has the fact that something is old mean that it doesn’t carry weight ? A bit like you saying that the US Civil War outcome can be ignored because it happened a long time ago. Utter rubbish.
@Rupert
I never suggested that I ‘know it’ as you put it. I am asking questions more than answering them. And I’m aware of the constitutional position, and the history, being from Jersey myself. I have just pointed out the extent to which the resulting fiscal differences have been exploited within the island (mostly by people who are only in Jersey to get their snouts in the trough in the first place), which has artificially increased GDP, swollen population, and, sadly and as an aside, has begun to destroy the island’s heritage and environment. Further, when the international community has curbed this practice in years to come, Jersey will be left with a disintegrating infrastructure it can’t afford. It will be left a wreck.
Back on topic, there is nothing wrong with living in Jersey and paying Jersey taxes – you contribute to the society in which you live. There is, however, something unsavoury about a system that looks for the best deal going and contributes not to the society that supports your ability to earn that money, but to an arbitrary one that simply taxes less. To deliberately avoid this duty is fundamentally ungrateful.
Anyone who avoids tax is almost always wealthy enough not to have to.
Rupert said: “The UK is bailing out UK banks, but its not offering to bail out UK subsidiaries of foreign banks. That’s the duty of the parent bank overseas.” The UK bailed out all savers with Icesave in the UK. Icesave was a subsidiary of Landsbanki Islands hf – not a UK bank. Yet close to 2,000 British expat savers with Landsbanki Guernsey, who were barred from opening savings accounts in the UK, lost the majority of their life’s savings.
M J Ashbey
I attended this briefing last night and what a load of rubbish it was. People started to leave after half an hour. This is the last time I will be taking any of the TJN/ATTAC or Christian claims remotely seriously.