Jersey has claimed in its discussion document on a new scheme for corporate taxation in the island that it has a “good neighbour” policy with regard to tax.
With the greatest of respect to those who who wrote the report that argument is unsustainable. I explain why in my new report, Plan B for Jersey. As I note there, Jersey has not ever really acted as a good neighbour to any other jurisdiction, anywhere, with regard to tax. That is because of the combination of a number of factors.
The first is that Jersey persists in the view that a company incorporated in Jersey is not resident in the island even if its directors are located there, its registered office is there and all its book-keeping and other administrative functions are located there. This practice is contrary to any normal state law on tax residence, a point which Jersey persistently ignores. But there is more to it than that. Jersey maintains this is possible because despite all these indicators of residence it claims that if the substance of the transactions of the company, which prima facie appears resident in Jersey, are actually elsewhere then it is really tax resident in that other place where that substance occurs. There are, however, two obvious conditions that must be satisfied for this to be true.
The first is that Jersey satisfies itself that the company is indeed declaring itself resident in that other place and is paying tax there. However, Jersey never asks that question. Jersey does not say as it should:
This company claims not to be “here” in Jersey so it must be “somewhere” else so let’s find out where that “somewhere” is and make sure that country knows about it before agreeing they’re not “here” in Jersey.
Instead it says:
This company claims not to be “here” in Jersey so let’s take their word for it and just assume they are “elsewhere” even though we have no clue where that “elsewhere” might be.
This is the first fundamental flaw at the heart of Jersey’s corporate tax system. This is not an accident: this is a deliberate turning of a blind eye to tax evasion.
The second is that Jersey makes sure that it is as hard as possible for the other place that is “elsewhere” but unknown to the Jersey authorities to secure the information they need to tax a Jersey company that undertakes the substance of its transactions in their territory.
Jersey ensures that this near insurmountable obstacle, which will persist unchanged in the era of Tax Information Exchange Agreements because of the massive information hurdles they place in the path of an enquiring tax authority, still exists and it does so deliberately. That is what makes Jersey 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.
In the case of Jersey the obstacles are:
1. The fact that company beneficial ownership is not on public record;
2. The real directors of the company who control its operations in that other place where it really undertakes its trades are almost never on public record;
3. The accounts of a Jersey company are not on public record;
4. Jersey has deliberately created a scenario where a non-resident company never has to submit its accounts to the Jersey authorities so no record of them is ever in its possession;
5. Because those accounts are never submitted to the Jersey authorities it never has to ask about them;
6. Indeed, it never has to check that the company has such accounts at all;
7. And finally, it has deliberately given up seeking information on beneficial ownership of companies, ever.
This means that Jersey is a perfect jurisdiction from which a trade may be pursued in another country by a Jersey registered company without that other country ever knowing about it and with Jersey denying all knowledge and responsibility for that fact.
This is the deliberate abuse which the Jersey corporate tax system is designed to facilitate and which none of the proposed changes it is currently suggesting will overcome, and which many make worse. Unless this flaw is removed there remains real risk that Jersey will remain a pariah ion the international stage and will not attract new business.
And that’s the plan Jersey is offering its people.
It’s really not a very attractive option.