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Island ‘has important role to play’ » Business » This Is Jersey.

JERSEY will have an important role to play in solving the global financial crisis, an audience of UK lawyers was told in London last week.

And, as a result, Jersey Finance chief executive Geoff Cook said that he had great confidence in Jersey’s future.

Mr Cook, who was speaking at an event at the Law Society Common Room, said that reputable international finance centres would play a vital part in helping to resolve the world’s financial crisis.

The fantasy of those involved in finance in Jersey continues.

Richard Murphy Jersey

Creative industries to replace finance? » Business » This Is Jersey.

I loved this. Being polite (which he has never been about me) I think John Boothman a bufoon, but I note he agrees with me after years of saying I’ve got Jersey wrong:

THE Island should be looking to the creative industries to replace the finance industry in future, a former senior banker told an audience of business leaders this week.

Members of the Jersey branch of the Institute of Directors heard John Boothman say that action needed to be taken, as the finance industry would disappear at some point.

‘Finance will go the way of cider making and privateering,’ Mr Boothman said.

He’s right of course.

I’m right that it’s going to happen sooner than expected.

And I know Jersey won’t be declaring UDI as some say it should on the back of film making.

It’s been fun for the Isle of Man and Ireland. But let no one pretend this is Jersey’s economic future. People cannot live on DVDs alone. Note least because Jersey is doing it’s damnedest to undermine the viability of the market for them.

Richard Murphy Jersey

There’s a letter in The Times this morning which in the interests of public debate I am going to reproduce in full:

Sir, Despite Clive Stafford Smith’s eminence as a lawyer, his proposed solution to the “kerfuffle” surrounding non-doms lacks the simplicity that he implies (“Just pay up in full”, letter, Mar 8).

US citizenship is clearly the citizenship of a single federal state that is entitled to tax its nationals as it so wishes. By contrast, those holding British citizenship include people from the Channel Islands and the Isle of Man, which are separate historic jurisdictions that are not represented in the UK Parliament but have their own governments and legislatures.

The people of Jersey have, for the past millennium, shown loyalty to their sovereign while claiming the right to not be subject to any form of taxation to which they had not consented. It would surely not be “fair enough” from a constitutional perspective either to seek to override the ancient rights and privileges enjoyed by islanders or to consider them any less British.

Gregory G. P. White
Advocate of the Royal Court
Saint Helier, Jersey

Clive Stafford Smith is, I admit, one of my heroes – a man who has dedicated himself to saving those on death row.

And Geoffrey White is a  lawyer who works in a cowardly island that is a secrecy jurisdictions - which 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.

If evidence is needed of my claim see what he’s written. No, he’s saying to the UK, you can’t charge fair taxes because we’re going to stop you.

But he ignores the solution (of course). That is that the real people of Jersey – those with Jersey issued passports – could be exempted from this charge if that was considered desirable and appropriate.

But he does not seek to suggest that obvious and easy solution. He just uses his ‘Britishness’ to undermine the UK’s tax system and necessary reforms to it to make it more effective – not least by ensuring tax is paid by those who avail themselves of the services of the Jersey finance industry and its tax exile offering.

It’s time professional people changed their tune: their duty is to support tax systems - not undermine them.

Richard Murphy Jersey

I’ve long predicted that Jersey would go bust sometime this decade as a result of a massive black hole in its budget. The Crown Dependency adopted the zero ten corporate tax regime (now deemed non-acceptable to Europe), massively cut its estimate of income tax to be collected, said it could make up the difference from a 3% GST (VAT) and a heroic assumption on continuing economic growth from the finance sector and, I said, would fail spectacularly to balance its books. I was, of course, completely dismissed. They were absolutely confident of the future.

One of us had to be wrong. The bad news for Jersey is it looks horribly like they were. In May 2009 they realised the black hole I forecast was real. In February this year talk of raising GST dramatically emerged. Now we know why. Two reports from the Jersey Evening Post yesterday tell us. The first says:

JERSEY bank deposits were down by 20 per cent while the value of funds under administration fell by 30 per cent in 2009.

The latest figures released by Jersey Finance show the impact of the economic downturn on the finance industry.

Let me be fair and add what they claim to be the good news:

However, there was some room for cautious optimism with the values of specialist funds growing as compared to the previous quarter. These include hedge, private equity and real estate funds.

Meanwhile, the value of funds under investment management increased from £18.4 billion to £19.7 billion – a rise of 4.4 per cent – during 2009.

And let’s also offer the excuses;

Jersey Finance chief executive Geoff Cook said that the decrease of almost 20 per cent for Jersey’s banking deposits during 2009 was hardly surprising given the very low level of interest rates throughout the year.

Before considering the impact, note the second article:

UNEMPLOYMENT figures in Jersey have soared to their highest level for 30 years.

According to official statistics released this morning, 1,200 people were registered as unemployed at the end of January – the highest number since 1980. Since the recession began in 2008, the number of people out of work has climbed steadily by 360 a year.

Of course in absolute terms the rate of unemployment is low – which is because those made redundant from Jersey who are resident on condition of their employment simply leave when they lose their jobs. What is significant is the trend.

In the case of deposits what is being seen is not so much as a trend as a rout. The source data is here in the December 2009 report. In December 2009 there was £165bn on deposit in Jersey, down form £206 bn a year before and £212 bn a year before that. Funds under management were down to £166 bn from £241 bn a year before.

Geoff Cook of jersey Finance says cash is down due to low interest rates: that’s absurd; they’re down all over the world. Jersey would not see cash deposits fall for that reason.

And to make such an appeal to external factors in the case of funds is impossible. There have been marked correlations in the past between movements in the value of funds in Jersey and stock market movements in the past, unsurprisingly. In 2009 the FTSE 100 rose by 18.6% after a fall of 28.14% in 2008. In 2008 funds under management in Jersey fell from £246 bn to 241 bn. There must have been a big net inflow of funds in consequence. But in 2009 that £241 bn should have increased, logically, to £285 bn, without assuming dividends were reinvested. Instead they feel to £166 bn. That’s not a fall of 30%. That’s a fall of 42%.

Total funds leaving Jersey in 2009 amounted to £160 bn on this basis.

What possible explanation could there be for funds leaving in such enormous quantity – and remember there’s no threat from the European Union Savings Tax Directive to most of these funds so this is not a sufficient explanation.

I can only offer one explanation. It’s a simple and logical one. In many of the prime markets for Jersey there have been tax amnesties. Italy is one, and its biggest market of all (the UK) is another. With regard to the UK the ‘amnesty’ for Jersey funds was not that attractive. That for Liechtenstein funds was much more attractive. We know Lichtenstein has seen an inflow of funds.

What does this imply? Simply this: that the money that has already left Jersey is part of the very large stock of funds previously held there that there were illicit in some form or other, whether with regard to the capital balance, the income earned or with regard to the nature of their origin. And now they have fled – either back to Italy, or the UK, or to Liechtenstein on their way to the UK. Alternatively they have fled – as many have said such funds would – to Singapore, Dubai or the even more ‘exotic’ locations such as Panama where they hope to remain hidden from view for while longer.

What alternative explanation is there? I’m struggling to explain this is anything but the outflow of illicit funds. And if this hypothesis (and I stress, it is only that) is true,  then all these previous protestations that there were no illicit funds in Jersey, it had never welcomed any and all its systems were tight enough to ensure none remained look as hollow as I, and many others around the world, always assumed them to be.

Let me return to my original hypothesis though – that this signals the beginning of the end for Jersey. This is not a minor crisis for its financial services industry. It is apparent that that industry is now collapsing. Far from fuelling growth it is suffering massive, even catastrophic loss in its volume of trade which makes any problem besetting Toyota look trivial by comparison. And yet this is the industry that was to fuel Jersey’s growth; the industry that was to fill its tax gap that was to provide for the future well being of those who lived there. Now, instead, it looks like that industry itself is failing.

This is disastrous for Jersey (even if the rest of us have to celebrate its potential demise as a secrecy jurisdiction). The financial services industry is 50% of Jersey’s GDP, which is now bound to be in freefall. The inevitable failure of the island’s finances is bound to be approaching as a result.

Like the Isle of Man which has recently suffered its own shock to its government’s revenue, Jersey is an island used to OECD levels of government spending. This will clearly not be possible if the financial services industry collapses. Despite that the need for healthcare, education, pensions, and other essential public services will not go away as a result of this change. Jersey will not, I think, be able to meet this challenge. In that case the end game for the island as a quasi-independent jurisdiction looks to be coming to an end. States can only survive when they are financially viable: the chance that Jersey is not is very high (and raising GST on local residents is not in any way a viable option when the real cost of living is already so high).

Jersey looked to financial services to be its salvation. But its business model, as many admit in their quieter moments, was based on illicit funds. The claim has been made that these have been eradicated as this century progressed. I always doubted that, until now. But if this is those funds leaving (and no doubt there will be more to follow) the  claim that the act had been cleaned up was decidedly hollow.

There trouble is that now there is no plan B. Full independence is folly in the face of financial disaster. Luring new industry in now is not possible – the damage is too far progressed for the current structure of the island’s economy to sustain other activity. The options left are limited: it seems to only be an appeal to the UK or the EU for integration. Nothing else seems plausible as the island begins to sink rapidly below the zones of financial viability.

I’m sorry in a sense to be proved right. I just wish Jersey had taken action sooner. Then it might not be in this mess. As it is things look like they’re going to get very grim indeed, very soon.

Richard Murphy Jersey

The Guardian, working I am sure with the irrepressible Richard Allen, have reported:

The controversial online sale of VAT-free CDs exploded at the end of last year, driving one in three purchases by British music-lovers on to the web. The surge in sales casts doubt over Treasury claims to be tackling the tax dodge, already thought to be costing the exchequer £110m a year and rising.

Websites operated by HMV, Tesco, Amazon, Play.com, Asda, WH Smith and Woolworths structure almost all their online CD and DVD transactions as personal imports from the Channel Islands. As a result they are able to offer unbeatable VAT-free prices, threatening the futures of music stores and sapping tax revenues.

Data from market research firm Kantar shows that 16.5m CDs were bought by British customers over the internet in the last three months of 2009 at an average price of £7.80. Over the same busy pre-Christmas period, 26.6m DVDs were bought online at an average price of £9.36.

In most cases, customers remain unaware of the extraordinary lengths online firms are going to to ensure the buyer avoids the 17.5% VAT charge they would pay on the same product bought from their local store. What appears a simple online purchase exploits a 27-year-old European tax directive that waives VAT charges on low-value personal imports from outside the EU. In the UK, the VAT relief applies to goods bought for £18 or less.

This is not a victimless sham:

Tax-free internet sales from the Channel Islands have been steadily ballooning over the past 10 years while the Entertainment Retailers Association claims 1,600 shops selling music have closed in the last five years. Among the high street names to have failed, or to have disappeared altogether, are Fopp, Our Price, MVC, Music Zone, Virgin Megastores, Tower Records, Zavvi and Woolworths.

It’s  a sham in my opinion none the less. It is impossible to explain the activity undertaken but for the tax saving generated. That makes this activity about as far removed from tax compliance as it is possible to be if tax compliance is defined as seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. Despite this, and inexplicably, the Treasury appears to persist in denying the scale of the issue – which now costs the government hundreds of millions in revenue a year – as much as was lost to the Isle of Man on its VAT arrangements.

All this is despite the fact that, as the Guardian notes:

In fact, the Guardian investigation had found that all but one of the companies involved in the VAT dodge were controlled by UK-registered parent businesses. Maidenhead-based HMV Group and Swindon-based WH Smith – both stock exchange-listed – push much of their online sales through subsidiaries HMV Guernsey and WH Smith Jersey.

Amazon has an arrangement with Indigo Starfish, a Jersey company owned by Glasgow-registered parent Indigo Lighthouse, while Tesco, Asda, Argos and WH Smith have struck outsourcing deals with Cheshire-based The Hut, which operates through Jersey and Guernsey subsidiaries. The only genuinely Channel Islands-owned company using the VAT loophole is Play.com, founded by islanders Richard Goulding and Simon Perree. The Guardian has been unable to find any mainstream website that does not offer CD or DVD sales via the Channel Islands VAT loophole.

The Isle of Man VAT abuse has been shut down. Now it’s time to do the same for the Channel Islands. There is no excuse for not acting left. This one is overdue for reform. As I’ve previously noted:

This problem could be solved overnight. If every packet from Jersey and Guernsey was opened to check values were under £18 and a £5 handling charge for doing so was levied on all who received those packets then the market would be closed in days.

That would be legal, and appropriate in the face of blatant tax avoidance. What is holding them back?

Richard Murphy Guernsey, Jersey, VAT

More homeless as recession hits » News » This Is Jersey.

The Jersey Evening Post reports:

THE true extent of Jersey’s homelessness problem has been revealed by a special JEP report.

A steep rise in the number of people using the Island’s homeless shelters – which are full to bursting point – is being blamed on the credit crunch, while Islanders are still regularly being found sleeping rough.

And many of the new admissions to the shelters are people the Shelter Trust has never met before.

This is the reality of tax havens: they create divided societies. The difference between them and other societies is that they do not do this by chance, they do it deliberately.

It’s the consequence of being secrecy jurisdictions -  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.

Richard Murphy Jersey

BBC News - Jersey GST could hit 12% by 2014 if spending continues.

I have been commenting on the Goods and Services Tax (GST - or VAT anywhere else) in Jersey just about since it was first promoted. I even advised them on it - saying it was a bad idea.

And now I note it is forecast to rise to 12% - by Jersey’s own civil service. There has been a sweep stake on this within the Tax Justice Network for some time - simply because it was inevitable that it would happen, as I also forecast.

It’s another sign of reverse socialism and Jersey had been warned. Ordinary people in Jersey are funding a tax haven. And no one will bail Jersey out when eventually, as eventually it will, Jersey goes bankrupt, as I have again long predicted. Indeed, the forecast deficit is I now note way in excess of anything I forecast and I was told I was speaking nonsense. What fools they were not to listen.

It’s a sad tale to date. And I fear it will have a sad ending because the finance industry does not care one iota about the people of Jersey. They’ll use the place until it collapses and then walk away laughing.

Richard Murphy Jersey

There’s a lovely page on the States of Jersey Treasury Department website that says with regard to its new law allowing the establishment of foundations:

Foundations (Jersey) Law 200-

Advice for Jersey residents considering registering a ‘Foundation’

It is advisable that, if a Jersey resident is considering registering a Foundation or has any interest in a Foundation he or she should provide the Income Tax Office with full details as to the reason(s) for doing so and the purpose of the Foundation and seek pre-clearance from the Comptroller before going ahead.

Failure to do so will lead the Comptroller to take the view that creating a Foundation has as one of the purposes, or the main purpose, the avoidance of Jersey tax.

The Comptroller will counteract such avoidance under the provisions of Article 134A of the Income Tax (Jersey) Law 1961.

Comptroller of Taxes

12 December 2009

So now we have incontrovertible proof: Jersey has deliberately created a structure for the use of those not resident in its jurisdiction which it knows has the sole or main purpose of tax avoidance (at best) which they consider best tackled by use of a General Anti-Avoidance Principle (for that is what their section 134A is).

If you wanted proof that everything I and others have said here over many years is true – here it is.

This proves Jersey is, without doubt, 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.

How can any place claim to be internationally cooperative or compliant on tax when this is what they knowingly, deliberately and wilfully do?

Note the phrase 200- simply means the final date on which the law is to be approved by the UK’s Privy Council on behalf of the Queen has yet to be advised.

Richard Murphy Ethics, Jersey, Tax avoidance

A commentator on this blog has said, referring to the UK’s requirement that the Crown Dependencies drop their zero / ten tax proposals, and quoting me in the first instance:

RM:  zero/ten is dead - unfortunately IOM and Jersey seem to be slow in realising this

Comment: Don’t believe this is true. I think the Islands are extremely savvy and they know perfectly well that zero/ten is "dead" but it works for them so why bury it any faster than they have to? Here in IOM I am pretty sure that when they first proposed it they knew the full package wouldn’t pass EU muster and that is why we only found out about the distributable profits charge on resident companies 3 years later. Another 3 years on when that hit the buffers we got the attribution regime and now a full 10 years on the rumblings are that zero/ten doesn’t cut it at all. Another model will be on the drawing board as we speak. It is a game of chess in which the Islands work out their next move AND the opposition’s next move in the fairly certain knowledge that it will take the lumbering, corrupt, bureaucratic giant a good while to reach the same conclusion.

I admire the admission of cynicism in the official approach to cooperation on tax matters that this comment reveals. I have every reason to think that this is exactly the approach the islands take.

I do, however, think the commentator gives the island’s far too much credit. I was, to some limited extent, involved in this whole process in Jersey. They, like the Isle of Man (with Guernsey, as ever, tagging along) thought zero / ten was really smart. Indeed, I recall an IoM lawyer calling it “a smart piece of footwork” back in 2004 or 2005. And the principle of zero / ten was approved by the EU in 2003.

The difficulty was that having proposed it the islands realised that they could not live with it. the failure of zero / ten has nothing to do with the EU or the UK: if the islands had really mean to charge zero per cent tax on companies there was nothing the UK or the EU could have done to stop them.

But what they realised, especially in the case of Jersey, was that they could not live without maybe a third of their tax revenues. As a result they tried to get round the nightmare they had created for themselves by re-introducing the ‘ring fences’ the EU had tried to outlaw – specifically charging locally owned companies one rate of tax and those operating ‘elsewhere’ to zero tax.

It was not zero / ten that failed. It was the incompetence and dishonesty of local politicians, civil servants and tax advisers in proposing a solution for the islands that failed to deliver the tax revenues that met the island’s needs that caused the failure.

And because the cynicism has not gone away I suspect the next proposed solution will fail too.

Richard Murphy Guernsey, Isle of Man, Jersey

Deadline passes for disclosure deal » Business » This Is Jersey.

The Jersey Evening Press reports:

ANY UK residents who did not meet a deadline to declare the contents of offshore bank accounts now face the prospect of immediate investigation for tax evasion.

But it is expected that very few Jersey account holders would have been among those rushing to tell HM Revenue & Customs that they had money secretly squirreled away here.

The secretary of the Jersey Bankers Association, Martyn Scriven, said that there may well have been a rush for information in ‘secrecy jurisdictions’ like Switzerland and Liechtenstein. But he said that it was much less likely that Jersey account holders would be among those confessing to having withheld details of assets from HMRC.

43% of all Jersey account holders from the EU did not information exchange with their domestic tax authority in 2008 under the European Union Savings Tax Directive. The only likely reason for not doing so was tax evasion.

On which basis it’s likely that tens of thousands of account holders in Jersey should have declared liabilities now, and haven’t.

But the bankers go on persuading themselves all is OK without ever seeking the evidence as to what’s really happening. And yet we apparently have to trust them on fiancial regulation.

I don’t.

PS One curious thing - they’re now using the language of secrecy jurisdictions, first widely promoted on this blog.

Richard Murphy Banking, Jersey, Tax evasion