Jersey Briefing

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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

Population

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:

  1. Abandon the withholding tax option under the EU Savings Tax Directive
  2. Commit to the proposed revisions to the EU Savings Tax directive tabled November 2008
  3. Commit to making multilateral information exchange agreements, on demand
  4. Match the UK’s requirements for company disclosure on public record at modest cost
  5. Regulate all hedge funds
  6. 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
  7. Permit regulation of banks in cooperation with the regulator of their parent company jurisdiction

Whilst the UK could:

  1. 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.
  2. 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