The basis for the European Commission's High Level Working Party's decision on the future of zero / ten taxation in Jersey and the Isle of Man has now been published. I can't as yet find it on the web, but I have a copy. It says:
The High Level Working Party (HLWP) discussed the current scope of the Code of Conduct on business taxation in line with ECOFIN conclusions of 7 December 2010 (doc. 17380/10 FISC 149) .
The HLWP took the view that personal income taxation falls, as a general rule, outside the scope of the Code. However, certain aspects of such taxation may be taken into account in specific circumstances.
The regimes of the Isle of Man and Jersey (doc. 16766/10 FISC 139 point 12) fall under the scope of the Code of Conduct due to the following reasons:
1. Shareholders are not taxed exclusively on actual distributions, but also on deemed distributions. The combination of both ensures current taxation of business profits at shareholder level.
2. Current business profits are effectively taxed at shareholder level via deemed distribution or attribution provisions. The mechanism is designed as a system based on shareholder and company taxation to ensure combined taxation of business profits.
3. The mechanism, whereby current business profits are taxed at shareholder level via deemed distribution or attribution provisions, only applies to resident shareholders thus creating an instrument to protect the national tax revenues and to attract non- resident shareholders.
4. The mechanism is an alternative means of taxing domestic business profits rather than an anti-avoidance measure.
These conclusions are without prejudice to any further clarification of the scope of the Code of Conduct made necessary by examination of other regimes with potentially damaging effects.
These conclusions are without prejudice to any further clarification of the scope of the Code of Conduct made necessary by examination of other regimes with potentially damaging effects.
I think that is in emphatic enough for even Philip Ozouf, the Treasury Minister of Jersey to understand. The last paragraph is also very important. It makes clear that the decision stands independent of any other consideration to come in the future and will not be revised as a consequence of those deliberations.
It is almost impossible to imagine that EcoFin will overturn this decision.
In the circumstances the response from Ozouf is almost too baffling to comprehend. His Department issued a press release yesterday, only as a consequence of my having put this information into the public domain, saying:
The EU Council’s High Level Working Party has met to consider Jersey’s zero-ten corporate tax regime and has confirmed the earlier findings of the Code Group. It has concluded that the combination of the Deemed Distribution rules and zero-ten does give rise to harmful effects.
The Code Group will now meet on the 17th February to formally assess Jersey's Tax regime.
The Treasury and Resources Minister, Senator Philip Ozouf commented "We are pleased that we now have clarity and that this conclusion has confirmed our expectations.
“Over the coming weeks we will be considering all of the appropriate options for Jersey and will announce a course of action once this process is complete"
A detailed background paper on the history and current status of zero-ten can be found online.
Unless I'm seriously mistaken what this says is that Ozouf always expected Jersey to lose on zero / ten. But only a few weeks ago he argued all was well with it. The man simply can't have it both ways. No wonder there's a motion of no confidence in him before the States of jersey right now.
The truth is that, as I have heard from at least one high level insider in Jersey, they are utterly terrified by the consequences of this decision and have not a clue what to do about it. They know that this decision knocks their whole finance industry into touch and they're scared stiff as a result.
And they also know the number to call. I've always said I'm willing to help. After all, I'm the only person who has ever and consistently called this one right. But I'm not holding my breath.
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@Richard Murphy
The people who really need help are the ordinary, decent people of Jeresy (Gurnsey and the Isle of Man. These will be the casualties of the collapse of the island’s finance industries.
And as the battlements begin to crumble and regime change becomes a real possibility it is important that the same old duplicitous faces are not allowed to infiltrate the new political structure to exploit and manipulate this as before.
A new Messiah is needed for all three islands.
Richard?
@Richard Murphy
While this decision was in no way surprising, it’s consequences could be significant.
Firstly though, Richard, I believe that your comments regarding Senator Ozouf are either naive or purely antagonistic (I assume the latter). As any politician does on major economic decisions, Ozouf was of course going to stand by zero/ten until the final EU ruling had been received. You are well aware of this and I would suggest that your comments are therefore aimed primarily at the masses to rally anti-Jersey sentiment (though I do not blame you as I note that you have to earn an income).
As for the future of Jersey, there are a number of options open to the island and it would be naive to believe that this will sign the end of the financial services industry on the island. The Island may have to move to an alternative tax system, such as a territorial one, but everything will of course be done to ensure that the industry does not leave the island.
Alternatively, what do you think regarding a calculation be done to review a worse case scenario eliminating the deemed divs and increasing indirect taxes/business levies but also using anti-avoidance provision to prevent joe-average employee setting himself up as a company.
It would be a genuine shame if Jersey’s financial centre were to diminish given the investment that it pours into the UK (contraty to the media hype that such centres take cash out of the country).
If however the finances did end, I’m sure that some other form of business would make use of the island, given the empty properties and office space that would inevitably ensue.
@jimmy
You may accuse me of many things, but being naive is rarely one of them. Nor was my comment about Philip Ozouf antagonistic. I am saying he’s being a hypocrite, or worse. But that’s antagonistic. In my opinion it is a statement of fact.
And shall we stop this stupid diatribe that you and many others try to put forward that I’m anti-Jersey? I have proven time and again that I’m a friend of Jersey. That is why put forward plan B, for example. That is a wholly pro-Jersey document. I have offered my help to solve this problem. I am a friend of Jersey, I’m just not a friend of tax abuse, and whilst some in the island ( many of them I note not Jersey people) pursue this activity with the full and open support of your political elite then of course I will oppose those people, but I stress, they are not Jersey. They are the financial services industry in Jersey and its captured political cohort, and that is something very different.
And of course, there will be a future for Jersey. I am still the early person to put one on the table. I await your political elite and your friends in the financial services industry doing something similar. What I can see you, with some certainty, is that they are scared witless about the prospect of having to deal with this problem. That is why I have offered might help. I at least have a track record in getting these things right.
In that context, I love your faith in free markets and your desire to restrict the choices that an ordinary person in Jersey might have about their medium for trading. Isn’t it some evidence of your pure contempt for local people that you will restrict the opportunities available to access limited liability to the local people to ensure that tax abuse can continue? How clear in that case is your desire to undermine Jersey itself, and to destroy the fabric of its society? Who is a friend of jersey now?
You do, however, really show your true colours when you claim that Jersey sends cash to the UK. Of course it does not. Jersey since not one penny of cash to the UK. I stress, not one penny. That money would come to the UK anyway, whether or not Jersey was there. You have nothing to offer to anyone for investment purposes in Jersey except tax abuse. I stress, nothing – oh, unless we adding secrecy, used far too often I suspect to hide regulatory abuse or criminality in the eventual state in which the beneficial owner of the funds does actually reside.
So the point is, all the money that comes into Jersey comes in for one purpose only, and that is to leave again, having been subject to regulatory abuse of another state on the way. Some of those funds will of course have come directly from the UK in the first place. And I agree, some will have come from elsewhere, and will end up in the UK. But the reality is that they end up in the UK because this is where there is a productive economy producing things of value which people want, which is something jersey does not know how to do now. That is why the money comes him, and that is why it would come whether or not Jersey existed. Do not delude yourself to the contrary.
The Jersey financial services industry lives on a myth. The first is that jersey and the financial services industry are the same thing. They are not. The second is that the ordinary people of Jersey benefit from the process. It is hard to see how they do and you clearly evidence your desire that they do not. Thirdly, you presume that it adds value. It does only do so by undermining the rule of law in other states. Fourthly, you presume it generates new cash flows. That is an absurd argument. The Jersey financial services industry is an exercise in free riding.
So yes, the end of zero 10 is highly significant. It stops some of the free riding. And on that basis, the whole exercise falls apart. No wonder local administrators are scared witless. They know territorial tax cannot work because it requires there to be proof as to where profits are made. Zero tax in jersey would require an activity to be undertaken somewhere else, where tax would as a consequence have to be paid. There would be no opportunity as now to pretend that a transaction takes place in jersey when it really does not. It would have to be somewhere, and not elsewhere. The pretence would be shattered. Game over. That is what is really frightening the Jersey establishment. And if you don’t know it, open your eyes, ears and nose and smell the fear.
@ Richard
To address some of you points.
1. Most importantly, you state yourself as a friend of Jersey and that the finance industry does not benefit the ‘ordinary people of Jersey’. You must realise that if the finance industry were to end, the lives of thousands of islanders in the crown dependencies would be ruined, many living in negative equity for the rest of their lives. Undoubtedly the finance industry provides benefits for Jersey residents through the provision of work and education.
It is easy to look back and say that tax havens should not be set up. However, the position that the crown dependencies are in means that the EU’s decision could ruin the islands and the lives of the ordinary island inhabitants.
2. If you read my initial comment, I did not state that you were naive, but rather antagonistic (petty I know, but needed to be pointed out!)
3. I would tend to disagree with your view that the UK is a great place to invest. It is entirely possible that many of the non-resident comapnies which invest in the UK would invest in regions which have far better growth potential (Asia / South America) or countries which are more developed than the UK (eg Germany, which is far more proactive in promoting scientific and physical development).
4. The use of anti-avoidance measures to prevent Jersey residents using companies to avoid tax is no different to the IR-35 provisions used in the UK. I would therefore also tend to disagree with your comments on that point.
5. You have put forward your statement that you could be the saviour of places like Jersey and I would like to ehar what your ideas would be as to how to remove the finance industry without runing the lives of the honest people who live there.
You will note my reference to honest people as, from my experience, 99% of the residents of Jersey are simply normal people attracted to employment opportunities. You can not deny that the devastation of their lives would be an awful thing to happen.
@jimmy
1. I am of course well aware of this. That is exactly why I have put forward a plan B. It is a viable proposition for the future of Jersey. The existing finance industry is not viable, as the current debacle shows. and I have proposed jersey should put in place a law that says that no mortgage on any property should embrace the current value of that property in the open market. This would protect local people from negative equity and make banks bear the cost of the over inflation property prices in Jersey which they have fuelled. There seems to be entirely equitable. But yes, there will be people who will leave jersey in the future, and I think that is inevitable. That is what happens when an industry fails. I bet you did not shed tears for the miners back in the 1980s. But it is in this case many of those who leave will not be local people.
2. no comment
3. If the UK is such a bad place to invest then jersey is doing a lousy job of preventing funds flowing to the UK. Either your investment managers are good, or bad. Which way would you like it? the
4. IR35 has very little real impact. And I really do not think that there would be a major problem in this way in Jersey. But the loss of tax revenue from giving up taxing corporations will be significant. And you know it.
5. Please read Plan B.
@Richard Murphy
Please can you link me to plan B, I would be interested to see the proposals put forward by yourself.
Legislation for mortgage protection would of course be good, but I would assume impossible the enact retrospectively.
As for IR35, the reason it has little impact is because it is in existence, thus a preventative procedure. A similar policy may work in Jersey if there were another creative way of filling the deficit lost on corporation tax in such an isntance.
Clearly tourism is no longer an option, but there may be other possibilities such as cruise ships / energy production and sale.
As for the miners, sadly I was not born at that point! However, I understand that much of the British economic problems here related to the nation continuing to use out-dated practices and globalisation (as well as the government pulling the plug on the subsidisation of what was an essentially unprofitable practice).
The closure of the mines did not resemble the loss of an industry accounting for over some 90% of the jurisdiction’s economy, unlike the finance industry in Jersey. I am sorry therefore that I think trying to make a connection between is somewhat ill-informed.
@jimmy
I always find amazing that people speak with such confidence about what I apparently believe when they can’t even search my website to find something to which I refer them. But here it is since you appear unable to use the search button at the top right hand corner of this page. http://www.taxresearch.org.uk/Documents/PlanBforJersey.pdf
Why can’t legislation on mortgage protection be enacted retrospectively? Jersey abuses every other principle of law, including that of trusts, so why not do this?
And I do admire your youth, but it does not excuse your lack of insight. please don’t pretend that jersey is somehow a distinct and separate jurisdiction. It is a small place, little bigger than a small town in the United Kingdom, of which it is an appendage through the City of London. And very many towns of similar size were devastated by the closure of coalmines. That is your basis for comparison. Do not pretend to be something you are not.
I must admit that I find your responses quite agressive, which I don’t feel contributes to a productive debate; an underlying trend seems to be that you will try to rile a poster only to criticise them later on. So, for the purpose of hoping for a productive discussion, I will ignore your first sarcastic comment.
Regarding the mortgage principle (and again ignoring the inflamatory comment on Jersey law), I have little doubt that retrospective enactment would be incredibly difficult, as it would be if, for example, the UK tried to enact such a law. Furthermore, it may prevent further lending on the island going forward. If you put yourself in the position of mortgage lenders on the island, would you not see the risks involved if such a law were passed and, ultimately, most likely consider to prudent to not lend or lend at extremely punitive rates?
You are comparing the removal of an unprofitable industry to an extremely profitable one. I don’t think that trying to make a comparison based on size is viable. This is however a minor point which has been overdiscussed and I do not wish to sidetrack from the issues at hand.
Thank you for the link, I am keen to read the proposals. I think that most Jersey residents would have an open mind to future developments, though I am not sure that you are so open minded. I note though that it is hard for both of us to be unbiased in our opinions given my outlook on Jersey and the UK in general and, from your point of view, the fact that these blogs are what pay your bills.
@jimmy
That was not an aggressive comment. It was me questioning your competence.
And you really can’t have it both ways on mortgages. First of all you want there to be protection for the people of Jersey. Then you want protection for the banks. Which is your priority? The banks will leave you at a moments notice if it suits them. They say so, repeatedly. In that case, surely the people of jersey come first? If not, why not?
And if you want explanation, I suppose of aggression, you will find it in your claim that you are running a profitable business. Is the use of your legislation to undermine the regulation of another state an acceptable business, irrespective of the profit? Is it acceptable that funds are sent through Jersey to the UK which have, absolutely no doubt, originated in places where children will die as a result of the lack of healthcare as a consequence? Do you really think I can stand aside and watch your island undermine democracy, undermine the rule of law and help destroy the life prospects of many millions if not billions in this world, and feel as if I owe you some form of favour? Please don’t talk about aggression when you seek to destroy all that is good in society.
And as for the claim that this blog pays my bills, I can assure you that there is no performance related aspect to my blogging. As ever, you are wrong
Richard
You are totally misguided on this point regarding territorial taxation:
“Zero tax in jersey would require an activity to be undertaken somewhere else, where tax would as a consequence have to be paid. There would be no opportunity as now to pretend that a transaction takes place in jersey when it really does not. It would have to be somewhere, and not elsewhere.”
You wrongly assume that all Jersey companies are “trading”, but you completely overlook the fact that thousands of them are holding passive wealth with investment portfolios managed in other jurisdictions which are not remotely interested in taxing the income or gains (Singapore, Switzerland etc). “Offshore trading companies” stopped being a core element of the market years ago. Most structures are passive wealth-holding vehicles these days, and they have no reason to engage in trading activities. If a Jersey company owns assets in an EU country then they will probably own those assets through a Luxembourg or Cypriot or Netherlands intermediate holding company. The Jersey company receives dividends, which is can happily declare, totally correctly of course, as being from “Luxembourg”, “Netherlands” or “Cyprus” in its Jersey tax return. There is no further interest from those countries in that information. They know that the income has been paid to Jersey-resident shareholders because they have seen the other end of the dividend chain.
The Jersey tax administrator will need to be satisfied that the income of a company (gains are irrelevant as Jersey does not tax capital gains and is not under any pressure from anywhere to do so) does not derive within Jersey. Whether that box is filled in as “Singapore”, “Switzerland” or not Jersey is pretty academic. That structure can very easily continue to be managed and administered in Jersey without any tax consequences anywhere (beyond any anti-avoidance legislation in the ultimate client’s home country of residence and/or domicile (if applicable).
This comment was deleted as it did not comply with the moderation policy of this blog.
The existence of the PSG is living proof that the regulation of Jersey’s financial services industry is at best anecdotal.
Consumer protection is arbitrary – and dependent on what suits the avaricious industry and its various influential suckers.
Safety of “investing” in/on Jersey compared with the UK is like chalk and cheese.
Jersey = Unreliable regulation
UK = Increasingly more active regulation
Steer clear of the smaller island. (Yachting term)
@Rupert
You really are like a cracked record.
The difficulty of your claim is that it completely conflicts with what is said by Jersey Finance. They think that trading companies in Jersey are vital to its future. Things may be different in Guernsey of course, but you’re getting 10% tax anyway, aren’t you?