Trusts » Tax Research UK

The Netherlands: A Tax Haven?

Netherlands, Tax avoidance, Tax Havens, Trusts 4 Responses »

Nov 212006

I guess it’s fairly obvious that there is a short answer to the above question. It is ‘yes’. The Netherlands is a notorious tax haven.

Equally, those who know me also know that whilst I’m happy to draw unambiguous conclusions, I like to do so in the basis of reasoned argument. This is a case in point. I’m pleased to say that a report with the above title has just been published by Dutch NGO SOMO. It has been co-authored by Michiel van Dijk, Francis Weyzig and me. I must add, I’m rightly last on that list. My co-authors did much of the work on this report, and a good job they’ve made of it too.

As the report says:

This report investigates the extent to which the Netherlands can be regarded as a tax haven. All the empirical evidence indicates that the Netherlands is a tax haven. This is because it deliberately offers companies who would not otherwise seek to be resident within its territory the means to reduce their tax charges on interest, royalties, dividends and capital gains income from subsidiary companies.

And as it continues:

As a consequence, the Netherlands hosts nearly 20,000 so-called ‘mailbox companies’ which do not have a substantial commercial presence. The data indicate every year more new mailbox companies are established, in particular during the period 2003-2006.

The report notes:

The[se companies] mainly function as conduits for dividend, royalty and interest payments. It has been found that out of the 42,072 financial holding companies registered in the Netherlands for which information on the (ultimate) parent was available, 5,830 are managed by trust companies. Of these mailbox companies, 43% have a parent in a tax haven jurisdiction such as the Netherlands Antilles, Switzerland, Cyprus, the British Virgin Islands or the Cayman Islands. Hence there is a clear link to tax havens for conduit structures.

The reports conclusions are, I think, worth reproducing in full:

The Netherlands must put an end to harmful tax policies and stop being a bridge between tax havens and other countries as soon as possible. The Netherlands needs to review its taxation policies in the interests of the world community at large. They should be revised to ensure that a level playing field is created where each country receives the fair taxation due to it as a result of the commercial activities undertaken within its borders.
However, tax havens are a global problem which requires a global solution, and the Netherlands putting an end to its harmful tax policies is a necessary but not sufficient step. Hence it is important that the Netherlands also actively puts pressure on other OECD countries to follow suit.
The Dutch government should commission an official research on the Netherlands as a tax haven. This SOMO report is the first comprehensive report on this issue and a more detailed study, including a more quantitative analysis,would be desirable.
The Dutch Central Bank (DNB) should regularly publish statistical information on SFIs.
To support transparency, a new mandatory International Accounting Standard should be adopted that requires multinationals to provide detailed financial information on subsidiaries.
All relevant actors, including corporations, government, civil society organisations, consultants, and analysts, should recognise refraining from tax avoidance as a core element of Corporate Social Responsibility (CSR). Issues such as a multinational’s presence in tax havens and the use of mailbox companies do not require fiscal expertise and can easily be assessed by any organisation. In the end, such measures are perceived to be in the interests of multinational corporations themselves as well.

Organised avoidance – the Jyske Bank

Tax avoidance, Tax Havens, Trusts 6 Responses »

Nov 092006

I’ve had my attention drawn to the Jyske Bank in Denmark. It says of itself:

Jyske Bank employs a staff of more than 4,000 and operates 119 Danish branches, which makes it the second largest independent Danish bank. We offer a full range of financial solutions to retail as well as small and medium-sized corporate clients.

So it might be. It also runs the Jyske Bank Private Banking service. This makes some of the more extraordinary claims that I have read from what is apparently a mainstream bank for some time. For example, in their introduction to the EU Savings Tax Directive they say:

The Directive is intended to counter tax evasion by providing for the automatic exchange of information between Member States.

Which is true. But they then suggest:

An EU resident may wish to consider several options if he does not wish to have the provisions of the Directive applied to him. In principle, a payment from a financial operator which is established outside the EU and the countries which have agreed to adopt equivalent measures will not fall within the remit of the Directive. Alternatively, individuals may also wish to consider the types of product they invest in, particularly with respect to collective investment funds, life insurances, offshore companies, trusts and Grandfathered Bonds.

One wonders why they think that an EU resident might wish to do that in view of their preceding comment, but they give no hint of such questioning in their ‘values’ section. Instead they offer products to facilitate avoidance of the STD. For example, they describe ‘insurance wrappers’ as an ‘exciting opportunity‘ and say of them:

As demand for this type of investments has increased since the verification of the EU Savings Directive, we have co-operated closely with insurance companies to develop solutions for our clients – onshore as well as offshore. Right now we can introduce two options from a Liechtenstein insurance company.

Again, one has to wonder what they think so special about a Lichtenstein offering, and what unique contribution it might have to offer. Perhaps the answer is to be found in their enthusiasm for promoting the use of offshore companies and trusts:

Companies and Trusts have been used, for many decades, to minimise tax and ensure confidentiality.

Today many individuals wish to retain their financial affairs private and confidential. This is possible to achieve sensibly and legitimately through the use of a company.

In addition, it is possible to structure a company so that on your death your wealth passes to your family, without the need for probate. Probate is the official process to establish who the inheritors of the deceased are.

They do, of course, omit to mention that in places like the UK probate is not granted until Inheritance Tax liabilities are agreed. The oversight appears unusual for a bank seeking to offer responsible advice to their clients. Maybe it is explained by the fact that the say:

By using a company confidentiality is maintained.

and:

There are many jurisdictions available for establishing the appropriate company. …. Most of the jurisdictions do not charge tax on income. However, some jurisdictions do require the filing of the names of the directors and shareholders, their residential addresses, occupation and nationality and also the preparation and or filing of the company’s accounts. These jurisdictions are for these reasons more expensive. Gibraltar, Jersey and Guernsey and the Isle of Man fall into this category.

In contrast, Belize, British Virgin Islands, Panama, Nuie and Samoa do not require disclosure of directors and shareholders at their Companies Registry nor the preparation and filing of accounts making these jurisdictions more cost effective.

Cost effective for what, one might ask? Perhaps their opinion can be deduced from their discussion on the direct ownership of assets where they say:

This may be undesirable particularly where taxes are high

OK, so how do they suggest getting round all this tax and disclosure? Their solution is the use of discretionary trusts:

Transferring money and investments to a company
As an example, say an individual who today holds money in a bank account or an investment portfolio with a bank, transfers these funds into a BVI company. The Company Manager on receiving the appropriate forms and due diligence alocates (sic) a company to Mr A. and opens a bank account for the company usually with Mr A. as signatory. In this manner Mr A. retains day to day control. So, Mr A. presently has EUR 100,000 in a bank account and EUR 250,000 in investments. These funds can be transferred to a newly formed company and Mr A. can own the shares in the company. For confidentiality reasons, Mr A. chooses the option to hold the shares through nominees.

If Mr A. is married, the shares could be held for Mr A. and Mrs A. jointly so that in the event of either of their deaths the survivor would automatically become the sole owner of the company. This can be extended so that if Mr and Mrs A. have 2 children all four can hold jointly.

Whilst joint holding can save costs, it is more appropriate for such shares to be held by a trust. With joint ownership Mr A. or Mrs A could not for example if one of their children became dependent on drugs or addicted to gambling, remove the children from joint ownership.

With a trust Mr A. and / or Mrs A could name the children as beneficiaries but alter their wishes from time to time specifying who will benefit and the proportion each child will benefit without the need for probate.

The result is that a major European bank is offering on its web site to use its “Company Manager” to set up an offshore trust and company for people resident in the EU which will enable them to hide behind that structure to avoid their obligations to pay tax. Nowhere does it mention that in some countries, at least, this might be a tax offence constituting evasion. Nor is it made clear that if the trust and its assets remain under the control of the settlor the trust is a bare trust and therefore void for tax planning in most countries. Such doubts are not even hinted at. Such blatant promotion of aggressive tax avoidance brings the entire banking sector into disrepute. I do hope that someone is giving serious attention to this bank’s activities. They deserve it.

Tax Research in the Jersey Evening Post

Jersey, Tax management, Trusts Comments Off

Oct 252006

The following appeared in the letters page of the Jersey Evening Post on 24 October 2006 (except that I’ve corrected it’s typographical errors, a sin of which I do know I am not innocent by the way):

Jersey trusts should be recognised as bare trusts

From Richard Murphy, director, Tax Research.

I NOTE the article (JEP, 13 October) in which Advocate Hanson says that non-Jersey lawyers should be seeking more advice from Jersey advocates regarding the future of Jersey trusts.

He is right, UK and other lawyers should be talking to Jersey lawyers about Jersey trusts, but not for the reason he says. The actual reason is simple. Under Jersey’s new trust laws the simple fact is that all Jersey discretionary trusts (and that’s the vast majority of them) are now revocable. That means that the settlor can ask for the trust assets, income and gains to be paid back to them at any time, even if they might have to apply on occasion to the Royal Court to do so. This does, according to senior Jersey civil servants, recognise the reality of what is, in any event, happening in Jersey.

The change is important though. By cutting away the charade that Jersey trusts have been properly administered to date and by recognising the reality that Jersey trusts no longer ever require the settlor to give up their interests in the assets they claim to have gifted the new law means that in English law all Jersey trusts should now be recognised as bare trusts, or mere nominee arrangements. The result is that the UK Courts will be under no obligation to recognise the validity of any Jersey trust and that Jersey trusts will now have almost no use in UK tax planning.

Jersey passed its new laws to reinforce the power of its own courts, and to legitimise the defects in trust administration which are known to be commonplace in the Island. But in the process it has shot itself in the foot. Its trusts will now be of no use for tax, matrimonial, or other planning in the UK and many other jurisdictions in the world.

Jersey would be wise on occasion to remember that it might be an Island, but its clients live elsewhere and it’s the laws of the lands in which they live, and not Jersey’s which matter. And some places still believe that when a person says they’ve given something away they have to mean it, even if Jersey does not require such honesty.

The Old Orchard, Bexwell Road, Downham Market, Norfolk.

Jersey shoots itself in the foot

Jersey, Tax avoidance, Trusts 1 Response »

Oct 022006

Jersey’s new trust laws have been the subject to some comment on this site, and in the Jersey and UK national press, at least partly as a result. There is, however, more to say. Whilst considering the emails that were sent to the Observer two weeks ago it occurred to me that the consequences of Jersey’s new trust laws are much more significant than the fact that they simply legitimise tax evasion of a type which has, according to Jersey officials, been going on anyway.

What they also do is fundamentally undermine the status of the Jersey trust. They do this for one simple reason. Every single Jersey trust can now be revoked, whatever the trust deed says. The power to revoke is included in the new trust law passed by the States of Jersey in April 2006, and even if a trust was originally written saying that revocation was not allowed Jersey law now allows that trust to be amended so that revocation will be possible in the future. And since it is the policy of Jersey to encourage this, and since the Courts of Jersey are now only allowed to consider Jersey law in deciding whether this should happen or not, and that law says it should be allowed, then it is not difficult to see that my argument is based both on law and on the current stated wishes of the Jersey political elite, as reflected in the emails published two weeks ago.

What is important are the ramifications of this. They may be fairly serious for the Jersey finance industry. The reason is simple. For a trust to be recognised as tax effective in English law (which is the recognised basis of most trust law around the world and which is, therefore the model with which trusts usually have to comply to be acceptable for tax planning) the settlor of a trust (i.e. the person who creates it) has to make an irrevocable statement that they will never benefit from the asset he or she has gifted into trust again. If they cannot do that, or of the law of the territory where the trust is created allows them to change their mind (as Jersey now does) then instead of the settlor being treated as having given the assets away so that they are no longer taxed on the income and gains arising from the trust assets they are instead treated as if they still owned them and as such it is presumed that the trust does not exist for tax purposes in the UK, and no doubt in many other places as well.

Jersey has abandoned English trust law as the basis of its own trust law by passing its new trust laws in 2006. As a result the UK should now consider any trust in Jersey to be a ‘bare trust’. This sort of trust is defined as follows:

A bare trust (sometimes referred to as a simple trust) is one in which the beneficiary has a right to both income and capital and may call for both to be remitted into their own name, they are also entitled to take actual ownership and control of the trust property. Although there are trustees, they are only effectively nominees and must act according to the beneficiary’s instructions.

And this is exactly what Jersey has created as the only type of trust now available in Jersey by ensuring that all trusts are revocable and that all the powers of management of the trust can be effectively retained by the settlor. If evidence is needed Paul de Gruchy, who according to Senator Walker was responsible for steering the new trust laws through the States, provided it when he wrote on 14 September that:

Currently, it is common for assets such as shares in a family company to be placed in trust, but for the settlor to wish to retain control over how the company is operated. Or an investment portfolio may be placed in trust, but the settlor may wish to manage the investments.

But he then noted that if as a result:

the discretion of the trustee is fettered, there is a risk that the trust could subsequently be attacked as a sham. For an international client, these are reasons to not use a Jersey trust.

So the new law were explicitly designed to overcome this by allowing the settlor to do what they like. This might have resolved a problem in Jersey law, where the published email correspondence suggests that such sham trusts were commonplace, whatever the law might have said to date, but it does not change the law elsewhere. As a result:

Jersey trusts should no longer be considered as such in the UK and other countries with trust legislation similar to that in the UK. They are instead bare trusts, meaning that all tax planning, past, present and future relying on Jersey trusts being irrevocable is likely to now have failed in the UK and elsewhere, whatever has been the case to date. If the settlor of the trust is now alive it is likely that they should be taxed on all the trust’s income and gains.
Because Jersey trusts are now mere nominee arrangements or bare trusts the EU Savings Tax Directive exemption for trusts is no longer available for any Jersey trust with an EU resident settlor and all the relevant income of such trusts is now subject to the provisions of that directive and will either have to be disclosed in the country in which the settlor now resides or be subject to tax withholding in Jersey;
The Jersey corporate ‘Special Purpose Vehicle’ market has depended upon the irrevocable nature of Jersey trusts. Since all Jersey trusts can now be revoked these Special Purpose Vehicles are no longer independent of the companies that promoted them and as such it seems that the debt that SPVs have securitised will now have to be shown on the balance sheets of their sponsoring companies, the precise outcome they sought to avoid.

In effect Jersey has shot itself in the foot with its new trust laws. By regularising what was known to be a sham Jersey has ensured that all Jersey trusts should instead now be considered shams elsewhere. The consequences for Jersey cannot be understated. But for once it has only itself to blame.

My full report setting out my reasoning in support of these conclusions is available here.

Do sham trusts impose a cost on society?

Corruption, Guernsey, Jersey, Tax Havens, Trusts 1 Response »

Sep 272006

I’ve written a bit about sham trusts on here of late. It’s good to have the evidence therefore that they really do impose a cost on society.

The US Senate report provides some examples. But there are more. Take another example from the US, reported in the Amarillo Globe News.

A 68 year old local doctor named Stephen Miller has been sent to prison for 46 months there for tax fraud. The report says:

Evidence at the trial showed Miller entered into a scheme with Charles Matich in 1996 to use limited liability companies and sham trusts to conceal income and move it into offshore accounts. Most of the money was moved by Matich to the Channel Islands, court documents show.

Matich is a cooperating defendant awaiting his own sentencing on tax charges in San Diego.

Think of the story behind this. Here’s a man whose reputation is in tatters towards the end of his life. No doubt there’s a family torn apart by this. Which is one massive cost. And then there’s the sum of $970,000 he’s also been ordered to pay in restitution. And the cost of the trial. How do you calculate a cost to society of all this?

And it all arose because of sham trusts and the Channel Islands. No doubt those who took part in the email correspondence in Jersey published here not long ago would say that this is not their problem. They say it’s up to the rest of the world to stop its own tax evasion. But they should rest assured, they might say that, but the rest of the world does not agree.

Thanks to Dennis Howlett for the story

What the OECD had to say in Seoul

Accounting, Ethics, Tax avoidance, Tax Havens, Trusts 1 Response »

Sep 262006

I was reminded by an email from Jeffrey Owens (head of tax at the OECD) that I have not given sufficient (in fact, any) coverage to what happened at the recent meeting of the OECD’s Forum on Tax Administration in Seoul.

The communique from the meeting said (amongst other things):

Our discussions in Seoul confirmed that international non-compliance is a significant and growing problem. Cross-border non-compliance can take many forms, up to and including outright tax fraud. Individuals have, for example, used offshore accounts, offshore trusts or shell companies in offshore financial centres or other countries to conceal taxable assets or income, as well as credit cards held in offshore jurisdictions to provide access to concealed assets; businesses of all sizes have created shell companies offshore to shift profits abroad often taking recourse to over or undervaluation of traded goods and services for related party transactions and some multinational enterprises (including financial institutions) have used more sophisticated cross-border schemes and/or investment structures involving the misuse of tax treaties, the manipulation of transfer pricing to artificially shift income into low tax jurisdictions and expenses into high tax jurisdictions which go beyond legitimate tax minimization arrangements.

Well, I agree with that.

In which case I’m also pleased to note that they agreed to:

(i) Further develop the directory of aggressive tax planning schemes so as to identify trends and measures to counter such schemes.
(ii) Examin(e) the role of tax intermediaries (e.g. law and accounting firms, other tax advisors and financial institutions) in relation to non-compliance and the promotion of unacceptable tax minimization arrangements with a view to completing a study by the end of 2007.
(iii) Expand its 2004 Corporate Governance Guidelines to give greater attention to the linkage between tax and good governance.
(iv) Improv(e) the training of tax officials on international tax issues, including the secondment of officials from one administration to another.

I’m especially pleased about point (ii). Where Senator Carl Levin has gone the OECD is now going. This is excellent news. It really is time that the professions realised it was time to reform their act, before its too late.

But will they listen?

Jersey – putting tax before regulation

Jersey, Tax avoidance, Trusts Comments Off

Sep 212006

The correspondence between Jersey’s tax officials, civil servants and politicians draw attention to some pretty unsavoury consequences of that island’s new trust laws. It would therefore have been all too easy to overlook the issues raised with regard to the introduction of 0/10 corporate taxation in the island.

The 0/10 regime is Jersey’s economically suicidal response to the requirements of the European Code of Conduct on Business Taxation. That Code says it is inappropriate for a territory to offer one tax rate to resident companies and another to non-residents. The obvious expectation in Europe was that there would be a levelling up. But, led by the Isle of Man the trend has been to level down to 0%- businesses’ dream tax rate. The Isle of Man can afford this because it has almost no need for corporation tax revenue because the tax haven status of that island is guaranteed by the UK government who pay it absurd amounts of UK VAT under an agreement so obviously unreasonable that it must constitute state aid to the Isle of Man financial services sector and all who abuse it.

So Jersey has to offer 0%. But Jersey will in 2006 get exactly half (£193 million) of its £385 million income tax revenue from companies. I have estimated that £120 million of this will be lost under 0/10. Terry Le Sueur, their Finance Minister has said I’m wrong; it’s only £90 million. Even if he’s right, the States are forecasting a deficit of about £70 million a year in 2010 when this policy comes into force. And that’s unsustainable, and they know it.

The fact that they keep any income is because financial services businesses will pay tax at 10% under the new arrangement (that’s the 10% bit of the 0/10, a formula which otherwise always comes to zero, as I suspect will be the case in reality).

Which makes it even more curious to note that a year after I told Jersey they had massive problems with their 0/10 proposals, and when under questioning from me in the States of Jersey scrutiny process Terry le Sueur admitted for the first time they had no idea how they were going to define who paid tax at 10% and who paid at 0%, they still don’t know how to do this. No wonder therefore that I gather that the States Treasury still officially have no clue how much tax they’re going to lose from this policy.

The reason is clear. As I said in my report to the States last year, they have a real problem with what are called the SPVs and other such arrangements in Jersey. These are ‘special purpose vehicles’. They’re used by very large companies to issue ‘off balance sheet debt’. In other words, they distort the presentation of the accounts of the issuing company. According to evidence submitted to the States last year companies that have used them include:

(a) Barclays Bank – credit card securitisation.
(b) Lloyds TSB – commercial paper conduit (securitisation).
(c) Capital One Bank – credit card securitisation.
(d) DZ Bank – all manner of capital market activity – securitisation, synthetic securitisation, capital raising etc.
(e) Commerzbank – commercial paper conduit (securitisation).
(f) HSBC – securitisation.
(g) Bank of America – securitisation.

But these SPVs are decidedly odd. First of all, they’re owned by charitable trusts (not that I’ve ever found any payments to charity by them), which means we’re back to trusts and all the issues that arise from them again. Second, the companies are deemed to be non resident in Jersey even though they are incorporated there, have their directors there and do all their business (which is purely book-keeping) there. Which is crazy, because they’re clearly not resident anywhere else. But none the less, Jersey does not tax them at present because in Jersey it really is true that the law can and does say black is white, even when to the rest of the world that’s obviously not true.

But under 0/10 Jersey is going to charge financial services business to tax at 10%. And it’s not allowed to ring fence, so it faces a bit of a problem with these SPVs, because they’re clearly financial services companies. Look at that list and tell me what else they are. And then note what John Harris, Director of International Finance for Jersey has to say in his mails:

I am “anxious” (perhaps unnecessarily) on 2 points – one absolutely fundamental to how 0/10 is intended to work, the other a matter of commercial value which we would be foolish in my view to ignore if we have no good reason to do so. Both go to the matter of the detail of drafting.

On the first point, how we describe qualification with the 10% rate is critical. If we simply lump all regulated businesses in a general definition we will sweep up vital zero tax vehicles such as SPVs, Funds etc into the 10% rate and the resulting reaction from industry and external advisers will not be pretty. I am therefore keen to see the draft now that there is one and to see for myself how the interface with the various regulatory laws is expressed. There needs to be a schedular approach – which in turn is mirrored by the FSC laws. I will explain what I mean by this when I see you.

(The second point is deleted here, it’s not relevant)

Now look at how Malcolm Campbell, head of tax, responded to this. He said:

On the first two points I think we need to meet to formulate drafting instructions and show them to Terry to make sure he is happy with them, and, if so, we can then send to the Law Draftsman…….the tick the box regime should be accepted by all and sundry but I am very aware how sensitive this matter is for some professionals so we have to be considered and careful in what we propose.

Let’s consider what this means:

1. First of all, it’s clear that the scope of regulation by the Jersey Financial Services Commission is to be changed to make sure that businesses Jersey does not want to tax are not taxed simply because they will be taken out of regulation.

2. Second it’s pretty clear that Jersey is heading for a regime of ‘tick the box’ taxation.

Now the first of these is important. It puts out the message loudly and clearly that tax avoidance is more important to Jersey than regulating important parts of its financial services sector. I guess there’s no surprise there, but it confirms what we’ve always known.

The second scenario is even more interesting. It’s going to be a matter of ‘tick the box’ to say whether you’re taxable or not. And the mails actually show that Jersey knows this is going to be almost impossible to monitor. As John Harris says:

people are sensitive to disclosure requirements which go beyond the existing admittedly minimal obligation

You bet they are. The disclosure in question is about whether companies are really resident in Jersey or not. And when faced with the question, and the almost certain knowledge that they cannot be proved to have ticked the wrong box (because if Jersey knows anything it’s how to make impregnable trusts) how many Jersey residents and companies are going to tick the box saying they’re not, even when they are? I think you know the answer to that.

Is it any surprise as a result that the Jersey States Treasury is now, I understand, reluctant to give nay figure for tax lost from 0/10 (which worries me, because it suggests I might have understated things after all). I think Jersey’s future is looking very bleak indeed. Which states’ future is not when it’s facing losing a massive part of its tax revenue, with any remaining part being dependent upon the honesty of at least some taxpayers who are, in no small part, dependent upon tax evasion for their income?

The politicians in Jersey like to pretend all is well in the place. The truth is clearly otherwise. Would you put your money in a country that looks like it might go bust? I wouldn’t, but let’s be clear, that looks likely. It only has reserves of £418 million according to the 2006 Budget. If the loss from 0/10 is only £70 million a year that’s bankruptcy in about 2016 then (since it starts in 2010).

What a way to run a financial services industry.

Technorati : 0/10, Jersey, financial regulation, tax avoidance

The Lib Dems and a 50% tax rate

Jersey, Tax management, Trusts 2 Responses »

Sep 202006

The Lib Dems in the UK have voted to drop their plan to increase the top rate of tax to 50% for those earning over £100,000.

In my heart I know all the reasons why many wanted to keep this policy. In reality, I’m happy with the reform on condition that (and in the case of the Lib Dems I think this condition is met) the intention is that those meant to pay 40% do pay 40%. At present that is not the case in the UK, where even the mega wealthy do not suffer overall tax burdens as high as that, all taxes considered. Such a move does require an extensive attack on avoidance and offshore. I think the Lib Dems have the guts to trail blaze that. Their Treasury spokesperson, Vince Cable has, for example, joined in our attack on Jersey’s position on trusts. This is important.

And you never know, such is the weird state of UK politics at the moment, one day they may even influence things, so I do take what they say seriously.

Technorati : jersey, lib dems, tax

Jersey – rotten to the core

Corruption, Ethics, Jersey, Tax Havens, Tax Justice Network, Trusts 3 Responses »

Sep 172006

The Observer published a story today about an email from Jersey that had been sent to it, seemingly inadvertently. Nick Mathiason at the Observer was kind enough to ask my opinion on the mail, and to send me a copy since he knows of my work there. For those who don’t, I advised a Scrutiny Committee of the States of Jersey on its proposed new laws in 2005 and my report was so damning that those new laws were entirely rewritten, as were the proposals for Guernsey.

I have mused on the mail I received. The Observer used it because they said ‘it would a dereliction of their duty not to do so’. Well, I think that on reflection it would be a dereliction of mine not to discuss it further, so I will be, over the next few days. But first of all let me repeat what I told the Observer, which was:

‘This proves that Jersey is rotten to the core. We now have evidence that its government knowingly facilitates tax evasion by creating legislation that allows it to happen. The government of Jersey has allowed the creation of sham trusts. Trustees are UK-trained and UK-regulated solicitors and accountants. The UK’s professional bodies should make it clear that this is unacceptable. It’s clear that the Jersey government’s aim is to help the rich evade the tax that they should be paying to other governments, including the UK’s.’

I should be explicit why I think this is the case. And I should also make clear we’re talking about Jersey’s new sham trust laws.

First of all let’s name who the mails are between. The principle players, all of whom wrote over the last few days, are:

1) John Harris, Director of International Finance for the States of Jersey
2) Terry Le Sueur is the Jersey Minister for Treasury and Resources (the equivalent of the UK’s Chancellor)
3) Malcolm Campbell is Comptroller of Income Tax in Jersey i.e. head of their taxation department;
4) Paul de Gruchy comes from an old established Jersey family and is an Advocate (barrister) who project managed the changes to Jersey’s trust laws on behalf of the States (government).

There are other minor players, such as Ian Black, Treasurer of the States of Jersey – but the above are the critical people. Together they cover the senior echelons of the civil service and politics and John Harris also, for example, sits of the board of Jersey Finance which represents the Jersey Finance industry to the world.

And what do the mails say? Well, take this from Paul de Gruchy to Malcolm Campbell:

I imagine that a large number of wealthy people all over the world (including Jersey) do just the thing you fear in your e-mail - place assets in trusts in another jurisdiction, define themselves as excluded persons for the time they are resident in a specific jurisdiction, have assets returned to them when they cease to be resident in that jurisdiction, and then receive all the gains/rolled-up income tax free.

Now he, and the other participants in the correspondence call this behaviour ‘avoidance’ but that’s self delusion on their part. To structure affairs like this is false representation. The person is claiming to put the assets in trust when they never have any intention of doing so. In other words they intend to evade tax. That’s entirely different from avoidance, but it is this evasion that Jersey is facilitating.

Now look at what de Gruchy has to say about how Jersey should react to this:

The changes to the Trusts Law are intended to give statutory certainty to a practice that is already widely carried out. Currently, it is common for assets such as shares in a family company to be placed in trust, but for the settlor to wish to retain control over how the company is operated. Or an investment portfolio may be placed in trust, but the settlor may wish to manage the investments.

In other words, rather than seeking to stop the tax evasion that is going on, Jersey is seeking to endorse it.

No wonder Malcolm Campbell said to the Observer that there was nothing in the proposed changes that would ‘make tax avoidance or evasion more likely than under the present statute.’

I’m sure that’s true. What Jersey is seeking to do is pass statute that endorses the evasion that is already taking place. Indeed, de Gruchy says:

‘What they will do is allowJerseyto compete more effectively for international work'. As John Harris says 'AsJerseyis squarely pitching itself at the expert/sophisticated/ultra-high net worth end of the market, we need settlor reserved powers in order to offer an attractive product to international clients.'

To put it another way (as the quote in the Observer makes clear) these people will evade anyway, so we must help them. It's a bit like saying 'there are thieves in the world; let's help the best of them by changing the definition of theft so that they can't be prosecuted'. In fact, that's exactly what is being said.

And that's why we now have the proof: Jersey is rotten to the core of its politics, civil service and professions. It's time the place was closed down.