Plan B does not appeal to Jersey

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I launched Plan B for Jersey a couple of weeks ago. Now I have my first official response, from Colin Powell, the  Adviser on International Affairs in the Chief Minister's Dept, but whom many would say is the architect of Jersey as an secrecy jurisdiction over a vey long career in the island.

In the interests of promoting the transparency I espouse I publish his mail in full

Dear Richard

Your Plan B for Jersey raises a number of issues that I imagine others may comment on. However as in my capacity  as Adviser on International Affairs in the Chief Minister's Dept I am the person primarily involved in negotiating TIEAs and DTAs I must take issue with you on your following statements -

Page 8 - Jersey
"2. Has not evidenced compliance with international standards by actually exchanging tax information with almost any partner it has signed a TIEA with: indeed many have yet to come into operation."

"3. Has not, having reached basic compliance with the OECD standards seemed to be making haste to sign more, compared to the panicked rush to sign twelve before the April 2009 deadline."

The current position regarding TIEAs and DTAs is set out in the attached document which is on the States web-site. Of 16 TIEAs signed 13 are in force. Those not in force include France where we have been waiting for 15 months for them to complete their parliamentary procedures for ratification and New Zealand who have taken 12 months so far. Of those in force to-date we have had a number of requests for information from 5 of the jurisdictions.

We have volunteered to be reviewed under the Global Forum Peer Review process - as you know Jersey is one of four vice-chairs of the Peer Review Group -  for both Phase 1 (laws and regulations) and Phase 2 (effectiveness). The latter is only being undertaken - in the first three years of the Peer Review Programme the majority of the 90 plus members of the Global Forum are being reviewed for Phase 1 only - where jurisdictions are able to provide evidence of sufficient information exchange for effectiveness to be properly addressed. Part of the Phase 2 review has involved the countries with whom TIEAs have been entered into completing a questionnaire on their experience in requesting information from Jersey.

You will see from the attached document that we have a significant number of agreements in the pipeline, all with OECD or G 20 jurisdictions. The delay in getting these agreements signed rests entirely with the countries concerned, largely because of the need to get their Foreign Affairs Ministry clearance of a TIEA that has been agreed between ourselves and the tax authorities of the countries concerned. The worst example of delay is that with Italy where we initialled the TIEA with the Italian tax authorities in April 2009 and we are still waiting for the Italians to give us a date for signing.

I hope you will find it possible to amend your paper to reflect the foregoing.

One of the key elements in the Peer Review process is testing the availability/accessibility of information on beneficial ownership. This is also an aspect being addressed in discussions taking place regarding the FATF Recommendations on AML/CFT which I am involved with wearing the hat of Chairman of the Offshore Group of Banking Supervisors. In this connection I was surprised to read on page 9 of your paper that Jersey "has deliberately given up seeking information on beneficial ownership of companies". The present position, which has been assessed by the IMF and the Peer Review assessment team through their on-site visits, is that beneficial ownership is required at the time of company incorporation and, under the AML requirements, all service providers are required to know who the beneficial owners are of the companies they administer whether they are Jersey or non-Jersey incorporated. We have had requests for information on the beneficial ownership of companies in accordance with the terms of the TIEAs we have entered into and we have been able to respond to those requests to the satisfaction of the requesting authority.

Kind regards

Colin

None of this is news to me, of course. And none, as far as I can see does in any way invalidate what I wrote because I am in the substance of effective, realistic, and cooperative information exchange which is likely to have meaningful impact on the rate of tax compliance of those using structures registered in Jersey – which I contend is likely to be low  since as a secrecy jurisdiction Jersey refuses to tax many of those structures in Jersey on the basis that it claims they are “elsewhere” but does at the same time fail to ask where that other place that is “elsewhere” might be or tell that place of the structures existence so that they might tax it. I therefore contend that such exchange is highly likely to occur, for that very reason.

But it would be wrong to refuse to change the paper if there is evidence that it should be altered, so again in pursuit of transparency I publish my reply, in full:

Dear Colin

Thank you for your mail and I trust you are well.

I note your concerns but think you have failed to understand what I mean by transparency. I mean that the substance and not the form of transparency must be in existence of a place is to properly claim itself to be transparent and I regret to say I have seen no evidence that this is the case in Jersey.

As you will have noted in Plan B, I summarised the fundamental flaw at the heart of the Jersey secrecy jurisdiction as follows:

There is a more important issue though, which goes to the core of Jersey’s plans and suggests why there will remain considerable doubt about the good faith of Jersey in offering any [tax] scheme to the EU. This is that Jersey has not ever really acted as a good neighbour to any other jurisdiction, anywhere, with regard to tax. That is because of the combination of a number of factors.

The first is that Jersey persists in the view that a company incorporated in Jersey is not resident in the island even if its directors are located there, its registered office is there and all its book-keeping and other administrative functions are located there. This practice is contrary to any normal state law on tax residence, a point which Jersey persistently ignores. But there is more to it than that. Jersey maintains this is possible because despite all these indicators of residence it claims that if the substance of the transactions of the company, which prima facie appears resident in Jersey, are actually elsewhere then it is really tax resident in that other place where that substance occurs. There are however two obvious conditions that must be satisfied for this to be true.

The first is that Jersey satisfies itself that the company is indeed declaring itself resident in that other place and is paying tax there. However, Jersey never asks that question. Jersey does not say as it should:

This company claims not to be “here” so it must be “somewhere” else, so let’s find out where that “somewhere” is and make sure they know about it before agreeing they’re not “here”.

Instead it says:

This company claims not to be “here” so let’s take their word for it and just assume they are “elsewhere” even though we have no clue where that “elsewhere” might be.

This is the first fundamental flaw at the heart of Jersey’s corporate tax system.

The second is that Jersey makes sure that it is as hard as possible for the other place that is “elsewhere” but unknown to the Jersey authorities to secure the information they need to tax a Jersey company that undertakes the substance of its transactions in their territory, meaning it should be taxed there.

Jersey ensures that this near insurmountable obstacle, which will persist unchanged in the era of Tax Information Exchange Agreements because of the massive information hurdles they place in the path of an enquiring tax authority, still exists, and it does so deliberately. That is what makes Jersey a secrecy jurisdiction.

Now I accept this is a serious allegation – but it is one I think to be true. But if you can show it is wrong then of course I would have to change what I have written in Plan B. So perhaps you might advise me as to the following:

1. What measure Jersey adopts to ensure that a company or trust registered in its domain but claiming to be resident in another jurisdiction is actually registered as resident in that other domain and is actually paying tax there?

2. What mechanisms Jersey has to advise another jurisdiction that a company or trust registered in Jersey is actually taxable in their jurisdiction?

3. If such mechanisms exist, how they work.

If such mechanisms do not exist can you please advise how you think that other jurisdiction where the Jersey registered company or trust is resident might establish that fact given the considerable prior information requirements that exist in Tax Information Exchange Agreements and the impossibility of securing the information necessary to make a TIEA enquiry from public domain information in Jersey?

Next, turning to evidence I need to revise Plan B, if appropriate, on the substance of information exchange, rather than the existence of its form, might you provide me with the following information:

1. The number of information exchange requests received from each jurisdiction with which Jersey has a DTA or TIEA since the time that the agreement in question was signed, breaking that data down by year;

2. The number of such requests that actually resulted in information being supplied, and the average delay in supplying such data, again broken down by jurisdiction and year.

Please for this purpose exclude data exchanges for the purposes of the European Union Savings Tax Directive, but with regard to that directive please instead supply the following:

1. For each jurisdiction to which data has been supplied since 2005, with all information split by year:

a. The number of accounts for which income details were supplied in full because information exchange had been permitted by the Jersey bank customer;

b. The total income so declared;

c. The number of accounts for which income details were not supplied because permission to do so had not been granted by the Jersey bank customer;

d. The total tax withholding paid over (either before or after Jersey took its 25% share, but please make sure which number is reported) as a result of permission to exchange information having not been granted by the Jersey bank customer.

2. Details of the form in which reporting is made e.g. is this by way of paper record, spreadsheet file, computer database listing, etc., and please specify if a computer file if the data in question is readily searchable or in static form?

Thank you for your assistance. On receipt of this information I will, of course, then be willing to consider revising Plan B if appropriate.

Best regards

Richard

I look forward to receiving Colin’s reply.