Why Jersey can’t information exchange

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By now Jersey has signed its tax information exchange agreement with the UK. This is not worth the paper it is written on. There are two good reasons.

First of all Jersey does not have the desire to exchange information. There is not a single measure on tax cooperation that Jersey has entered into willingly. Every sinew within its political and civil service structure, let alone within its financial services industry, is opposed to the idea of information exchange. It is inevitable as a result that it will resist every single information exchange request that is presented to it, for as long as possible, and in as much detail as possible. It will have this right under the terms of the tax information exchange agreement.

Second, Jersey has been doing its utmost to prepare for this day over the last few years. By this I mean that Jersey has been shedding itself of absolutely every possible piece of information that it can to ensure that the chances of effective information exchange taking place are reduced to the lowest possible level. Just five years ago the Jersey government require the following information be made available to it:

  1. Proof of identity of persons owning Jersey companies.
  2. The accounts of Jersey companies, which had to be submitted with tax returns.
  3. Tax returns, at least I have ever had in a while T the company traded within Jersey.

In addition, Jersey financial services regulations required that each financial services provider must have proof of the place of residence of their client.

This has now changed and now:

  1. Jersey has given up enquiring about the beneficial ownership of companies registered in the island. They claim that this is now the responsibility of financial services providers, but note that point made below about the limited enquiries a person in Jersey must make about identifying their client.
  2. The Jersey authorities no longer require that the accounts of any companies trading in Jersey, or registered in Jersey, be submitted to them except for that tiny minority who will be subject to the 10% tax rate because they operate within a very limited part of the financial services sector.
  3. Tax returns are not required for Jersey companies. The explanation given is that they do not pay tax. This is completely untrue: those owned by Jersey residents do through an entirely sham arrangement that attributes at least part of the profits of these companies to their members, which requires that these companies must in practice submit data to the Jersey authorities. No companies owned by persons outside the island do now, however, have to submit tax returns, and so no data on these companies, which will be those subject to information exchange requirements, is held by Jersey authorities for any reason at all. Nor need it be held by any Jersey financial services provider meaning that for all practical purposes absolutely no data of any sort is available upon these companies for information exchange purposes unless they happen to be within the tiny proportion paying the 10% tax rate.
  4. Jersey no longer requires its financial services providers to obtain proof of a person's residence. This is incredibly convenient. It means that no financial services provider need determine whether their client is within the scope of the EU savings tax directive, or not, and it also means that no financial services provider need have proof of whether an enquiry from third-party tax authority applies to their clients, or not.

And, of course, Jersey has absolutely no idea how many trusts that are supposedly located in the island because there is no register of trusts, there never has been any obligation upon trustees to advise the authorities of the existence of any such trust, and there are no tax returns submitted for Jersey trusts on behalf of non-resident people.

It is a sorry tale that basically suggests that the Jersey authorities have no way of knowing where most of the clients of their financial services industry are resident, and cannot, therefore, answer any enquiries from tax authority with regard to a person resident in a particular place. They have no way of knowing anything about a company registered in the islands, at all. And they have no way of really knowing anything about any trust supposedly located in the island.

Now tell me how information exchange will work?

And forgive my cynicism, but I do not think it a coincidence that they signed an information exchange agreement at the moment that they had divested themselves of the last of this information.