Jersey » Tax Research UK

Jersey – really all that good at compliance?

Jan 202012

I loved this. On 16 January the Jersey Evening Press proudly says:

OFFICIALS from Jersey went to the US Embassy in London last month to show the Americans that the Island’s financial compliance armoury is every bit as strong as that of the United States’.

And French government officials are expected to come to the Island in the next couple of months on a fact-finding visit to see for themselves how well the Island’s finance industry is regulated.

Tres bon, say I.

Then next day they report:

A COMPANY director faces a ban after he overrode both the firm’s board and its compliance function to take on a ‘toxic’ Eastern European client connection, it has been revealed.

And the director faces a public statement being made about him, according to the Island’s most senior finance regulator.

Meanwhile, in a different case the financial regulator acted against a regulated firm for trying to discipline a compliance manager for raising concerns about bad practice.

The director general of the Jersey Financial Services Commission, John Harris, said the compliance manager faced ‘misconceived and intimidatory disciplinary proceedings’ for raising the concerns.

The second is especially interesting: it makes clear that the attitude in the island remains that people must do as they’re told or “take the boat in the morning” – the age old advice to “get out if you don’t like it”. I’m sure that’s a major theme in compliance ignored by all the official reports.

Why Jersey’s claims are so wrong

Jersey, Uncategorized 9 Responses »

Jan 182012

Today’s edition of the Financial Times carries a dreary letter from Geoffrey Cook, chief executive of Jersey Finance (an industry lobbying group supported by the island’s government) that is I think word for word the same as the statement I published here yesterday. The content is predictable: Ed Miliband (leader of the UK parliamentary opposition) is wrong to identify Jersey as a tax haven; Jersey is cooperative on tax matters, endorsed by OECD, blah, blah, blah.

In October 2011 the Tax Justice Network published a detailed assessment of the laws, regulations and international treaty arrangements of Jersey and 72 other countries and micro-jurisdictions. Jersey was assessed with a secrecy score of 78 points out of a potential 100, ranking the island seventh overall on the global index and placing it high in what we would call the danger zone of financial centres prone to attracting nefarious activity (and not just tax dodging).

The TJN assessment was clear and transparent. Its key findings are summarised as:

1. Jersey does not adequately curtail banking secrecy;
2. Jersey does not put details of trusts on public record;
3. Jersey does not maintain details of company ownership in official records;
4. Jersey only partly requires that ownership of companies is put on public record;
5. Jersey does not require that company accounts be available on public record;
6. Jersey does not require country-by-country financial reporting by companies;
7. Jersey does not require resident paying agents to tell the domestic tax authorities about payments to non-residents;
8. Jersey does not use appropriate tools for effectively analysing tax related information;
9. Jersey does not avoid promoting tax evasion via a tax credit system;
10. Jersey does allow harmful legal vehicles;
11. Jersey only partly complies with international anti-money laundering standards;
12. Jersey does not participate fully in Automatic Information Exchange;
13. Jersey signed a relatively large number of tax information sharing agreements complying with basic OECD requirements, (but these agreements are so weak and ineffective that they serve no purpose whatsoever)
14. Jersey has only partly ratified relevant international treaties relating to financial transparency;
15. Jersey only partly cooperates with other states on money laundering and other criminal issues.

I think you’ll agree this is fairly damning. At the time TJN published the 2011 Financial Secrecy Index, Geoffrey Cook dismissed its findings as “nonsensical” and “contrived propaganda”. TJN invited him to expand on the specifics. To date he hasn’t replied, and neither would he wish to since he knows the TJN research is factually and analytically correct. That’s why he – and representatives of other tax havens – resort to propaganda (“fully cooperative on tax matters”, etc, etc) and smears (“the wildly inflated figures produced by self-appointed lobby groups such as the Tax Justice Network”).

TJN stands by its assessment. Jersey is committed to maintaining its role as a secrecy jurisdiction. It refuses to cooperate with international initiatives to tackle tax evasion, e.g the automatic information exchange provisions of the EU’s Savings Tax Directive, and its endorsement by the OECD, which white-listed Jersey in April 2009 merely reveals the latter organisation as weak and constrained by the strait-jacket of its membership.

Geoffrey Cook’s letter to the FT can be read here. I’m confident you’ll agree that its nothing more than financial industry propaganda.

NB: based on a TJN blog, with permission

In the interests of fairness – Jersey’s comments on Ed Miliband’s accusations

Jersey, Uncategorized 11 Responses »

Jan 172012

This statement has been issued by Jersey this morning in response to Ed Miliband’s suggestion at the weekend that more action is needed to tackle tax abuse in Jersey.

It seems only fair that he can shoot himself in the foot in full. I’ll comment on them as soon as I can. I can assure you though, that as ever, this statement is utterly misleading:

Statement from Geoff Cook, Jersey Finance, relating to recent comments made by Ed Miliband

We have noted with disappointment the comments made by the leader of the opposition, Ed Miliband, over the weekend, in which he urges action by the EU against British Crown Dependencies, including Jersey.

It is disappointing when political leaders choose to make inaccurate accusations about Jersey which do not reflect the positive contribution that Jersey and the other Crown Dependencies make to the broader UK economy. Once again the confusion between the terms “tax avoidance” and “tax evasion” creates a false impression of Jersey’s co-operative, well-regulated offshore financial centre.

Tax evasion is illegal in Jersey and it is a criminal offence – not a civil one –to facilitate or engage in tax evasion. The majority of Jersey’s activities are focussed on the pooling of and structuring of international funds that have already been taxed.

The last Labour Government commissioned the Foot Review in December 2008. The report highlighted the value that Jersey provided to the UK during the banking crisis in the form of hundreds of billions of pounds of liquidity. That contribution continues to this day.

Furthermore, the report concluded that the amount of tax avoided by UK corporates using British Crown Dependencies and Overseas Territories was “significantly lower than estimates produced by previous studies have suggested.” Therefore, the Foot report and most recent analysis from the HMRC (September, 2011), both suggest that tax avoidance is considerably lower than the wildly inflated figures produced by self-appointed lobby groups such as the Tax Justice Network.

The characterisation of Jersey as a “tax haven” fails to recognise the regular endorsements that the island has received from the OECD and IMF. Moreover, the accusation made today that Jersey is not co-operative with the HMRC is quite simply wrong: Jersey has signed both a Tax Information Exchange Agreement (TIEA) and a Double Taxation Agreement (DTA) with the United Kingdom. Jersey has very clear, open and transparent lines of communication with HMRC and is fully co-operative on tax matters. We also work alongside the UK in fighting financial crime and tax evasion. Ian Gorst, the Chief Minister of Jersey has today extended an invitation to Mr Miliband to visit the island to learn first hand how Jersey actually operates as a stable, reliable and responsible international financial centre.

Poor old Jersey as it fails to exploit the punters

Jersey 1 Response »

Jan 162012

The Jersey Evening Post has reported:

JERSEY’S attempt to cash in on the multi-million-pound internet gaming industry has so far failed to bring in a single penny in revenue for the Island.

And the move has hit a potentially disastrous stumbling block because Jersey licensed companies are currently banned from advertising in the UK – one of the most lucrative online gaming industries in the world.

As a result not a single company has applied for a licence in Jersey, despite years of work and thousands of pounds of public investment.

Amazing, isn’t it, that a state can spend so much encouraging abuse and fail at it?

But that’s Jersey for you.

And some say it is a perfect example of what a state should be. Time to think again, maybe?

What Labour has said on tax havens

Guernsey, Isle of Man, Jersey, Labour, Secrecy jurisdictions, Tax Havens 2 Responses »

Jan 162012

The following is a blog post by Shadow Labour minister Owen Smith MP on tax havens, published yesterday. I reproduce it as it seems to be the Labour line on the announcements made this weekend:

These are tough times for families and businesses. Bills are going up, jobs are being lost, incomes are being squeezed.

And as Ed Miliband and Ed Balls have made clear, if Labour was in government now we’d be making different choices.

We wouldn’t be cutting spending and raising taxes as far and as fast as David Cameron and George Osborne. Their reckless plan has choked off the recovery and put more people out of work, which means £158billion more borrowing than planned.

And the reality is that this Tory-led government’s failure on the economy means tough times are set to continue.

But when unfair choices are being imposed on people – like cuts to tax credits, or changes to child benefit – everything needs to be done to ensure those that owe tax pay their fair share.

I have been urging ministers to get a grip of the rumbling controversy about supposed sweetheart deals cut by HMRC with some of the world’s biggest businesses and we will continue to raise questions about that.

And today, Ed Miliband has highlighted another vital issue where rising public anger shows more than ever the need for real action now. Continue reading »

Ed Miliband’s giving an ultimatum to tax havens

Guernsey, Isle of Man, Jersey, Secrecy jurisdictions, Tax avoidance, Tax evasion 47 Responses »

Jan 152012

Ed Miliband is giving an ultimatum to British tax havens. According to the Independent:

Ed Miliband declares war today on the UK’s secretive offshore tax havens which he says could raise £2.4bn for the Exchequer and help to reduce the deficit.

As Ed Balls, the Shadow Chancellor, signals a major shift in economic strategy by admitting that a Labour government would be unable to reverse all of the coalition’s cuts, Mr Miliband will expand on his theme of “fairness in tough times” by making those at the top of society contribute more.

In the Labour leader’s sights are the Channel Islands and the Isle of Man, which shelter UK residents’ cash which would otherwise have to be taxed by HM Revenue and Customs.

European Union loopholes allow UK residents to disguise money offshore held in front companies and trusts. The tax havens are not obliged to let HMRC know which British taxpayer the vehicle relates to.

The EU is attempting to close these loopholes, but Mr Miliband will say that this time-consuming process, which could take years, is allowing billions of pounds to go uncollected.

A Labour source said: “In these tough times, when unfair choices are being imposed on people – like cuts to tax credits, or changes to child benefit – everything needs to be done to ensure those that owe tax pay their fair share.”

Mr Miliband will call on the Government to act as a matter of priority through diplomacy at EU level. The plans are an expansion of his theme, set out in his speech last week, for the deficit to be reduced through fairness – particularly tackling the richest in society, while defending the “squeezed middle” on low to middle incomes.

Tax experts estimate that as much as £2.4bn could be raised by calling time on UK tax havens. Richard Murphy, director of Tax Research UK, said: “Breaking tax haven secrecy is essential to collecting the tax that’s the alternative to cuts.”

The policy, which would be included in Labour’s 2015 manifesto, is designed to show Mr Miliband is acting on reducing the UK’s deficit amid ongoing questions about his leadership and the party’s economic credibility.”

And according to the Observer:

Ed Miliband, the Labour leader, is to demand that the government forcesJersey, Guernsey and the Isle of Man to reveal the identity of British tax evaders with money hidden on the islands.

The tax havens, which are crown dependencies, are costing the government billions every year as the rich protect their money from Revenue and Customs probes through front companies and trusts.

Miliband will this week call for negotiations to begin with the governments on the three islands. He will also demand ministers follow up the talks with threats to shame the islands on the international stage by placing them on a globally recognised blacklist drawn up the Organisation for Economic Co-operation and Development (OECD)..

The move is part of the Labour leader’s attempt to define himself as the foremost campaigner in British politics against the excesses of capitalism. He will claim that every £1m raised by his policy on tax havens is equivalent to a year’s salary for 50 newly qualified teachers.

UK residents with money abroad are required to pay tax in Britain on the income they receive, but many do not declare that they have money stashed away.

Jersey, Guernsey and the Isle of Man have not been co-operating with UK authorities’ requests for the identity of people with money on the islands. Richard Murphy, of Tax Research UK, said the country could recoup £2.4bn.

I have already provided links to my workings this morning. They are likely to be an underestimate as they ignore tax to be recovered on capital hidden offshore.

I do, of course, welcome this move by Labour. My hope is it’s the start of a whole campaign on the tax gap. That though is for time to tell. For now it makes very clear that the claim by the Crown Dependencies that they are transparent and all is now well with them is but a hollow sham: that is far from the truth. Now it is time for them to offer real reform if they are serious in their claim that they do not want tax evaders to use them, something that is all too easy at present.

Ed Miliband says it’s time to come clean to the UK’s tax havens

Cayman, Guernsey, Information exchange, Isle of Man, Jersey, Secrecy jurisdictions, Tax avoidance, Tax Havens 11 Responses »

Jan 152012

Ed Miliband’s announced a new initiative today that is sure to resonate around the offshore world.

As I understand it he, in essence, has said three things. The first is that the UK should push as hard as possible for the European Union Savings Tax Directive (ESTD) upgrade planned for 2013 to be implemented as soon as possible. Second, in the process he suggested George Osborne had put back the whole process by negotiating the Swiss tax deal over which the EU is now threatening to pursue the UK because it does not comply with the requirements of the existing ESTD, let alone the revised one. And third he said that if for any reason the EU can’t deliver the ESTD on time because Austria and Luxembourg continue to try to block it then the UK should go ahead and demand that its Crown Dependencies and Overseas Territories enter into deals equivalent to those required under the ESTD with any reasonable country that wants one.

Now this is radical stuff. The ESTD is about tax evasion, that’s all. It has no other purpose. So this initiative extends the whole debate about corporate responsibility from the issue of company tax into the whole arena of the tax evasion that some companies – and notably banks – facilitate through their offshore operations, whether knowingly or not.

Second, whilst the ESTD has been in operation since 2005 it has been widely acknowledged – even by the EU itself since 2008 - that there are gaping loopholes in it. The Tax Justice Network view of this is here. The key points are simply though. First, the existing directive only applies to cash deposits – and based on my research of offshore portfolios that’s rarely more than 20% of offshore asset holdings – meaning 80% or more of all income escapes the arrangement and so remains untaxed in most cases in the country where it should be declared for tax purposes whilst, second, the ESTD only applies to income held in an individuals name so that cash and other assets held in companies, trusts and other arrangements also avoids or evades tax as well. Put the two facts together and I estimate well over 90% of all income that should be known about in tax havens like the Channel Islands is not advised to HMRC.

Those are loopholes too big to tolerate at a time when tax revenue is the scarcest commodity in the UK economy.

The big question then is, can Miliband do this? My thinking is yes, he could. First, this is about the international relations of the Crown Dependencies and overseas territories, and we are responsible for them, and as such can legislate them if we wish to do so, and opinion that the House of Commons Justice Committee came to in 2010 when reviewing this issue, basing their opinion on the Kilbrandon report. Second, knowing this the Crown Dependencies have actually done all we have ever asked them to do on such issues. That is exactly why they have adopted the European Union Savings Tax Directive and the EU Code of Conduct on Business Taxation despite their reluctance to do so. In practice they knew they had no choice but do so. Third, if they really want to be awkward we could simply remove the exemption from tax being withheld on payments of interest, royalties, dividends and other sums to these places that are in operation at present and they cease to be tax havens overnight and lose their entire financial services industry at a stroke. Given they publicly say they don’t want tax evaders to use them there is no way on earth they’d risk that, but we could impose it, and they know it.

So Miliband, if he were prime minister, would hold all the cards in his hands, and the Crown Dependencies would have the 2,3 and 4 of spades when hearts are trumps. In other words, this threat isn’t hollow; this threat is for real.

And what would we win by doing it? Well, I suggest it could be £2.4 billion a year. That’s best on my 2009 estimates, here and taking just the part relating to the Crown Dependencies into account.

That’s why I applaud this move: it’s a straightforward attempt to tackle tax evasion. That’s exactly what government should be doing now. And it’s a low cost attempt to do so as well. It works by shattering secrecy. After that’s done the pressure on those with these accounts to disclose will be very high indeed – and so the measure is virtually self-policing.

Of course the Crown Dependencies will protest – but if they do so then they’ll be coming out on the side of tax evaders. Is that what they really want to do?

And if their reply is those tax evaders will just move their funds? Then, I suggest, we have to look at regulating the banks involved a lot more aggressively because in that case they will be willingly assisting tax evasion. That’s the next step. But for now let’s note that a politician has taken a courageous line on this issue.

Zero Ten isn’t a success for Jersey – it’s an outright disaster for the people of the island

Jersey 2 Responses »

Dec 212011

The EU has approved Jersey’s zero – ten tax regime.

This is not, of course, the regime I said would fail: they had to amend it time and again over the last six years as time and again the EU ruled I was right on zero – ten and Jersey was wrong, but crowing they are none the less:

THE road leading to the approval of the Island’s zero-ten business tax system has been long and occasionally rough. It has also been lined with commentators eager to insist that the formula would fail to meet criteria of acceptability set by the European Union.

Finally, however, the EU has confirmed that zero-ten now meets the requirements of the code of conduct designed to stamp out harmful tax practices and the critics have been confounded.

Except we’re not confounded: very far from it. Although I raised one last doubt about this latest version it was clear Jersey was likely after changing the scheme so many time going to get it through. And the victory for Jersey is pyrrhic. As Deputy Geoff Southern of Jersey has noted, the cut in corporate taxes that zero-ten delivers is at cost to the ordinary people of Jersey. As his amendment to the revcent Jersey Budget said:

So what the Jersey Evening Post and the elite of Jersey are celebrating are their ability to exploit the people of Jersey to support the finance industry and the tax cheats from other countries that they serve.

Some victory.

And I’ll conclude with a quote from Simon Jenkins, who is no left winger, in the Guardian today:

Osborne is the scourge of public sector unions and condemns tax avoidance, yet he refuses to end the scandal of crown tax havens, from Jersey to the Caymans, that enjoy the benefits of British citizenship while enabling individuals and corporations to evade British tax.

What’s been the success of the campaign against Jersey? To make people like Jenkins realise what a sordid, nasty place it is run be people who are dedicated to destroying democracy and the well being of people around the world.

And we’ve won. Confounded? Not at all. But Jersey will be when, as I’ve said so many times before, it runs out of money as its zero-ten policy leads to its economic ruin because the model Jersey’s pursuing now is utterly unsustainable.

Simon Jenkins on tax justice

Cayman, Jersey, Tax Havens, Tax justice 8 Responses »

Dec 212011

A decade ago an article like this would not have happened.

It does now.

Don’t say changing moods is not possible.

This is Simon Jenkins in the Guardian today (edited, of course):

Osborne is the scourge of public sector unions and condemns tax avoidance, yet he refuses to end the scandal of crown tax havens, from Jersey to the Caymans, that enjoy the benefits of British citizenship while enabling individuals and corporations to evade British tax. Last week the European Union lectured Britain on financial regulation, while harbouring on its borders such fiscal black holes as Monaco, Liechtenstein and Switzerland. The thesis, accepted by governments of all parties, that the rich should be allowed to escape tax for their “wealth-creating potential” has surely been exploded by the credit crunch. It is not the kind of wealth Britain can afford. If Goldman Sachs dislikes paying British taxes it should go to Dubai, not just the first-class lounge at Heathrow.

The control of public expenditure is never perfectly equitable. It is war by other means. But when large sections of the public are being asked to bear the burden of cuts in their standard of living – largely through the action and inaction of government – they are entitled to see at least a semblance of fair play.

Just because lobbyists say bonuses and tax havens are “essential to Britain’s recovery” does not mean they are. The government’s tolerance of both is more than stupid. It induces cynicism in the public realm and recruits fair-minded people to the cause of St Paul’s protesters and public sector strikers. Nothing is more crucial to national wellbeing at a time like this than a sense of equality of misery. The British government derides Greece and Italy as countries where taxpaying is “voluntary”. It appears to be voluntary in Britain too.

He’s right.

Creating this awareness has taken a lot of effort. Now we need action to address the issues. When will people get serious about the Tax Gap? It’s entirely possible to do so. But only the Greens take it seriously as yet. That’s to their credit, and none to anyone else.