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.
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Richard
This is one of your more insightful postings, and I suspect that you know more than you are putting on the blog at this point.
I disagree with some of your points, or perhaps with your emphasis. All governments (unless dictatorships) aim to protect their people and economy. To that extent, the ‘great game’ has been played out between countries since the year dot.
Where you and I disagree most is that I know that Jersey is moving to a new place and so I look forward. You ofetn look backwards and criticise past failings. Jersey will survive, and will evolve. We could move more quickly, but we are definitely on the right path.
I am loving watching the Sarnians Super Trott and Parky squirm on a hook of their own making. Let’s watch them go first this time and learn from their screw-ups!!
Love Girrl
Richard,
Further to your comment on mine, please allow me to make clear that it was not an “admission of cynicism in the official approach” of the island authorities. I am not in a position to make such an admission. It was simply my own observation as a resident running a Manx business. Whether it is cynical or pragmatic is in the eye of the beholder.
Woolley
Done
But since you hide behind a pseudonym how do I know who you are?
And why are you concerned?
Richard
From memory (and I’m getting old so might not remember this the right way around) wasn’t it the Isle of Man that announced zero ten first? Thereby virtually forcing Jersey & Guernsey to follow suit or loose their finance industries? Faced with that, I think Jersey & Guernsey did what most people would do, where they have all failed, in my opinion, is to think ahead and see that such a plan was doomed to failure from the start.
@John Buckles
And I find my self in the rather satisfying position of having told them all that in 2005 – in reports for the States of Jersey
Richard
There aren’t many things we agree on but I do in this respect. It was a stupid decision on so many levels by all Crown dependencies.
Ok Richard – you told us so – or rather that lot ‘in the other island’ !
Guernsey has tended to be a follower not a leader but now perhaps, on reflection, we are showing our hand too early. Do hope that on something so important the islands (@ least CI) could shed their mutual suspicion and work together.
Nevertheless realistic pragmatism will ultimately prevail and a valid tax regime will evolve over 2010/11.
(think you will find the ‘zero/ten is dead …’ quote is from moi!
a la prochaine
Jersey’s bureaucrats are mindful of one thing — “tax neutrality” – a euphemism for allowing capital to use the island to its unique advantage even at the price of ruination of the place where it operates. Zero/Ten is not ruled out, just one of several options that are being developed. They see Guernsey as having panicked by declaring publicly that they would be moving from a zero to 10% rate. Jersey is staying cool and considering its options. There is no expectation of any change for 3 years and “grandfathering” provisions will see it through to 5 years. The lumbering EU recognizes itself that a tax re-write takes a minimum of 3 years. So until 2012 Jersey’s guides consider the system safe. For the moment, the “nuclear option” of a unilateral declaration of independence by Jersey, along the lines of the Bailhache “Interim Statement”, can remain just a blueprint.
“where they have all failed, in my opinion, is to think ahead and see that such a plan was doomed to failure from the start”
I think it was John Updike wo once said that if everything is to be judged by permanence, everything fails. The purpose of 0/10 was to develop a tax regime that would be acceptable to the EU for the forseeable future. It will have lasted for 7-10 years at least before any changes come into force. It is, on that basis, a qualified success.
Where it is more arguably a failure is not internationally, but domestically, but that is largely because the Jersey States have not adjusted their spending (which is, per capita, the highest in Europe) to adjust for reduced tax income.
Hang on – that really is Mad
You’ve only just introduced it
That’s an odd 7 years
What sort of world do you live in when you can distort things that much?
Richard,
It was designed in 2005 to meet EU concerns. It was introduced in 2009. It will probably be replaced by something else in 2014, given that it take 3/4 years to design a new scheme. So it will have dealt with the problem for 9 years.
All a bit of a waste of time really, however, as everybody now accepts that the Channel Islands are not and have not for a long time been used for tax evasion.
@mad foetus
There is no right thinking tax administrator on earth whio will accept your contention on tax evasion
Your continued support for tax evaders by refusing to adopt disclosure under the European Union Savings Tax Directive is outright evidence that you promote tax evasion with desire to profit from it
Richard
Richard,
As you well know, Jersey wanted disclosure: it was the EU themselves that introduced a withholding option for the benefit of their members. So presumably your contention is that the EU want to promote tax evasion.
You may believe that there is some moral context in some of this. The truth is that, as with everything that comes out of the EU, is that it is all politics driven by narrow national self-interest. Jersey just plays by the rules that others set. If you disagree with the rules, don’t blame Jersey.
@mad foetus
I well know that what you have said is completely and utterly untrue
Jersey had to be dragged kicking and screaming to the table and only considerable threats from the UK got it to agree to anything
You are either severely deluded, or are severely misinformed or are deliberately spreading misinformation when you write as you do
Jersey knew its business was, and is, based in part on tax evasion and had then and has now no intention of giving that up without a fight
Richard
I don’t think you are correct in your comment #14 to Mad Foetus. My recollection is that Guernsey, Jersey and I believe the Isle of Man had just about come to terms with the prospect of automatic exchange of information back in 2005, believing it to be inevitable. At a late stage, knowing that the EU needed unanimous agreement from all member countries, Belgium, Austria and Luxembourg demanded a withholding option, which the EU was willing to agree to, and at that point the Crown Dependencies (actively supported by the UK) simply demanded a level playing field with Luxembourg in particular, fearing a major loss of business to Luxembourg and also to Switzerland. The perverse logic of the EU imposing automatic exchange of information on the Crown Dependencies (non-EU members) yet allowing actual EU member countries to adopt a withholding option, meant that the withholding option was bound to be offered to the Crown Dependencies.
The EU had no obligation to offer a withholding tax option but chose to do so. An end date with stepped rates of withholding tax was implemented. The EU went into that with open eyes and, having offered those three countries plus the Crown Dependencies an option, how can we be accused of doing something wrong by accepting it ? The EU are big boys playing in a grown-up world – why offer it if it wasn’t acceptable to them ? They write the rules and they made the offer. It was a compromise to get the EUSTD through in its initial form and that worked. If the EU now things that it got it wrong, then there’s an end date to it – problem solved.
Personally, I think that the Crown Dependencies “backed the wrong horse” and as a result gave the impression that we were concerned about competing with Luxembourg. My view was and is that we were never competing with Luxembourg as tax evasion was not a core market for the CDs. However, the perception to the outside world by backing that horse has clearly worked against us, but the EU caused the problem by offering those three EU countries the withholding option in the first place. The Crown Dependencies were hardly going to agree to something more onerous than was permitted within the EU itself, but the perception was clearly created.
Jersey may well have been dragged screaming and kicking to the UK TIEA table in 2009, but I think that’s a separate situation than with the EUSTD in 2005.
Times have moved on and retaining the withholding option continues to send out the wrong message in my view. The Crown Dependencies are wrong to cling on that option as it continues to give the perception that we have something to hide, but the level playing field position still remains with some EU countries and with Switzerland and logically the Crown Dependencies and those remaining EU countries with the withholding option should all agree to move to automatic exchange simultaneously.
So what about Switzerland ? Will it ever agree to automatic exchange ? On the one hand if it doesn’t do so then the level playing field will never exist within the EU and so the objectives of the EUSTD will never be met. rendering all other issues academic. On the other hand, if the Crown Dependencies were to lose further business to Switzerland as a result of giving up the withholding option, surely its not the type of business that the Crown Dependencies should be worried about losing anyway ? Where’s the downside ?
Rupet
All your dates are wrong and I think your recall with it
Sorry – again this is simply not what happened
Richard
Richard,
Can you tell us what did happen then as my recollection is exactly the same as Ruperts. How did the witholding tax option arise? Who first raised it and who insisted upon it?
Are you seriously suggesting that the Crown Dependencies materially rewrote the EUSTD and somehow unfairly persuaded the EU to agree to it? Because that doen’t seem plausible.
I agree – Ruperts posting is an accurate summary and analysis of the sequence of events – so Richard, how is it wrong – give us the RM version….
Richard
I can happily accept that my dates may be wrong, but I don’t think that my recollection is wrong at all. Mad Foetus has separarately made the same points. I’m happy to be proved wrong though.
Sorry – apologies due
I was on a Code of Conduct wavelength
Your dates are right
Sorry
Richard
The ‘who said what and when’ argument overshadows the basic truth:
the CI’s economy is based on ripping the global majority off.
and they do it with such a pompous arrogance that it is no wonder they are derided. Sod the the technicalities, now the truth is out instead of hiding behind convenient bureaucracy, why aren’t these sophisticated ‘geniuses’ fighting to produce something that works in the spirit of the marketing guff they produce.
Make things better.
Arnald
We are making things better. Perhaps the pace of evolution is faster than our businesses – and maybe even our politicians – would want, but change is inevitable.
The Girrl