I blogged correspondence I’d received from Colin Powell, a senior adviser to the government in Jersey regarding Plan B in July.
I also blogged my reply to Colin Powell asking for further information in response to the suggestions he has made.
Colin Powell has now replied to me, saying:
Dear Richard
Thank you for your e-mail and I trust you had a good holiday.
As my previous e-mail was in response to your comments on Jersey’s performance regarding tax information exchange agreements I will respond to your further comments on this matter first.
On the subject of the number of TIEAs, I am afraid I am not able to give you the information in respect of the jurisdictions from whom requests have been received. We did initially quote a figure for the number of requests from the US but have been told by the IRS that they do not want this information made public. Other countries have expressed similar views. However, the current assessment of Jersey under the Global Forum Peer Review Programme is addressing how the requests received have been responded to both in terms of the quality of the information supplied and the time taken to provide it. The assessors will be reporting later this year, and the report will then be made public. What I can say is that the requests that have been received, from a total of five countries to-date, have been responded to within the time limits set in the OECD Model TIEA.
Information has been given to other jurisdictions on request under the TIEA arrangements and there are no “massive information hurdles”, as you suggest, placed in the path of an inquiring tax authority where a TIEA exists. Jersey is complying fully with the current international standards, and the requirements to be met set out in the Regulations are those in the OECD Model TIEA which have general application. There has been no suggestion made by any of our TIEA partners that they are finding the TIEA a “massive information hurdle” and they have expressed their appreciation of the cooperation they have received from us. As a Vice-Chair of the Global Forum Peer Review Group I can also assure you that the Peer Review process is not identifying the present TIEA framework as a barrier to information exchange. In due course automatic exchange of information may become an international standard. When this step is taken Jersey can be expected to follow, in line with its established practice of seeking to comply fully with international standards whether they be in respect of financial regulation, AML/CFT, or tax transparency and information exchange.
You ask for information on the EUSD. The number of voluntary disclosures each year since 2005 and the interest income declared is set out as follows —
Year Number of Disclosures Interest Income
Total Units of Currency
Millions
2005 (half year) 58,433 106.75
2006 61,600 242.18
2007 69,745 281.74
2008 74,138 326.96
2009 68,332 115.36
For those who did not opt for voluntary disclosure and where the retention tax is applied we do not have the number of accounts because this information is not required by the Member States. The total retention tax payments since 2005 are as follows —Year Paid to Member States Retained by Jersey Total
£ mill £ mill £ mill
2005 (half year) 9.00 3.00 12.00
2006 21.90 7.30 29.20
2007 26.24 8.74 34.98
2008 26.72 8.90 35.62
2009 8.85 2.95 11.80The format used for reports to the Member States is to be found on the following website —
http://www.gov.je/TaxesMoney/InternationalTaxAgreements/EUSD/Pages/MethodsSubmission.aspx
Turning to your questions about company incorporation, Jersey is complying with international standards according to independent assessors — for example, see the high level of compliance identified by the IMF for FATF Recommendations 33 and 34. In the work currently being undertaken by the FATF on improving the application of Recommendation 33, Jersey, through its required declaration of beneficial ownership on company incorporation and more importantly its regulation of TCSPs, is often recognised as a leader for others to follow. If there is an established international standard that you believe we are not complying with I should be pleased to hear from you. In addition, can you elaborate on your points regarding company residence for tax purposes, and what information is provided by other countries on company incorporation in respect of companies formed by non-residents and with mind and management elsewhere?
Jersey’s position as a leading jurisdiction has recently been recognised in the re-election of the Director, Registry, in the Jersey Financial Services Commission, to senior positions on three international bodies. He has been re-elected as the chair of the international section of the International Association of Commercial Administrators which represents business registries of the United States and Canada. He has also been re-elected to the five member Board of the European Business Registry, and has been appointed Deputy Chairman of the Board and Rotating Chairman of the Annual General Meeting. Thirdly he has been re-appointed as website secretariat for the European Commerce Registries Forum, and is the primary contact for communications relating to the memorandum of understanding signed last month between the Forum and the Corporate Registers Forum.
As new international standards are agreed Jersey can be expected to comply with them. One standard that Jersey presently has in place and which Jersey believes should become an international standard is the effective regulation of TCSPs. FATF typologies on the misuse of corporate vehicles have shown that more could be achieved in the availability, accessibility and exchange of beneficial ownership information if TCSPs are as effectively regulated, and fit and properness requirements are applied, as in Jersey.
Kind regards
Colin
Adviser - International Affairs
Chief Minister's Dept
In the interests of keeping any one blog post to reasonable length I’ll be posting my reply shortly — and separately.
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The voluntary disclosures are a joke. Over the past 4 years, the average interest disclosed by individuals is GBP 3,500. These are all small fish with an average fixed income asset of £100k. Be assured that all larger fish were aided by banks to avoid the savings tax, some of the nastier schemes were on television such as routing fund interest to Hong Kong or switches to non-UCITS. Be assured that every investor with 5 or more figures were funneled into IBCs or other 1990’s style tax planning.
The retention tax is the biggest joke, being applied on interest of £160m in total or let’s say less than £10 billion of deposits. A mere fraction of fixed income investments on the island.
Let’s see the real figures once the savings tax is amended.
Mark
Why are the voluntary disclosures a “joke”? Isn’t lawful tax planning legitimate? It stands to reason that if somebody has a large offshore account then they will take lawful steps to defer the tax. What precisely has Jersey done wrong by not reporting people for not doing anything wrong?! But you are surely also missing the point that even with a structure in place to own the bank account, the Jersey financial institution still needs to ensure that the accountholder is not evading tax unlawfully. Are you saying that all those structures must be unlawful and that all will have used “IBCs or other 1990s style tax planning”? Have you not heard of insurance bonds, for example?
Why is interest of £160m on £10 billion of deposits so unlikely? That’s an interest rate of 1.6% per annum. What rate of interest are you getting on deposit at the moment? And don’t forget that Jersey’s deposits are measured in Sterling for reporting purposes, regardless of the currency in which they are held. And as we all know, DOllar rates are negligible and have been for some considerable time.
@Rupert
Yes, I am quite sure tens of thousands of those deposits will involve evasion
And yes I do think bankers have turned a blind eye to that
The evidence remains overwhelming that this is the case
And there is no evidence at all that banks in jersey ask customers if they are paying tax on deposit interest where they should – and they all deny any duty to do so
In other words -all you are saying is blatantly wrong
Rupert,
I am so far ahead of you on how bankers avoid the savings tax, it’s not worth explaining why. Sure, setting up an IBC or an insurance bond to avoid the savings tax is lawful.. but it’s against the intention of the directive. That’s why the EUSD amendments will now include these “lawful methods”. The point why I mentioned £10 billion (which I didn’t say was unlikely, nor did I mix my currencies – read my post again) was that this is a tiny fraction of the billions on deposits in Jeresy. This goes to show you that over 90% of the interest that should have been within the EUSD scope, escaped by the use of 1990’s tax planning tools. (And yes insurance is 1990’s old style planning – with their high charges voiding tax benefits).
Soon, you’ll see why wealth management planners who think they are so clever to “lawful methods” will hopefully be out of job. The EUSD closes the simple loopholes such as IBCs, discretionary Trusts, foundations, partnerships, Non-UCITS & hedge funds, Grandfathered bonds, insurance bonds, structured products and other derivatives, etc.
The whole reason for my original post was to counter Jersey’s implication that most of the interest is either being voluntarily reported (a joke I say again) or subject to withholding tax. I tell you now, the official estimate from those that count is that banks in Jersey help their clients avoid well over 90% of the savings tax. A figure worse than Switzerland and Luxembourg. Only the Cayman Islands is worse with them changing all their funds overnight to “non-UCITS equivalent” to avoid the EUSD. Oh dear, the EUSD amendments now include all forms of funds.. glug glug goes Caymans.
That poor relationship banker who got fired in Jersey for bragging about brain storming ideas to avoid the EUSD and then coming up with the inane idea to route income payments of a fund via Hong Kong, didn’t deserve to be fired. It’s the pompous senior management of the bank that agreed to that tax evasion method that should now be squeegeeing windscreens for a living.
But no matter, eventually the EU Council will negotiate with Luxembourg about withholding taxes versus automatic exchange of information.. and then pass the EUSD amendments. Thus hopefully putting tens of thousands of tax planners and service providers like those you support, onto the street where they belong. Why should places like Jersey have a single dime of managing assets because they can avoid the EU savings tax? Let’s see how many clients will remain in Jersey with its relatively expensive asset management fees when they have to disclose their holdings…
@Mark
I’ll confirm Mark is probably the foremost expert on this issue….
Richard
How are you “quite sure”? Where’s youe evidence? Your hypothesis and conclusions are based on sand.
Mark
Where do I start?
Firstly, I agree with you that the management of the bank in question (from the Panorama programme) deserve to be outcast if they were condoning/encouraging the use of Hong Kong that way, as seems likely. But as I’ve argued with Richard already, one bank out of dozens is not a valid sample to draw conclusions about the Jersey industry.
Secondly, insurance bonds are NOT expensive. It is only the appalling sales commissions which give them that reputation. I set them up, fully regulated, for ZERO initial fee and 0.5% per annum. Hardly a dent in the investment returns is it?
Thirdly, the proposed extension to the EUSTD has not yet, to the best of my knowledge, been passed, so its not yet law. We could be talking several years yet. But even if it is passed, it will only affect those involved in tax evasion. Personally I wouldn’t lose any sleep at all over it as not one of my clients is engaged in tax evasion. I know of at least another 20 leading fiduciaries for whom it would similarly have no impact. Now, if we were the sort of businesses which Richard thinks we are then we would be crapping ourselves. But we aren’t.
Finally, the proposed extension to the EUSTD re insurance bonds only applies to bonds which are predominantly invested in cash or debt instruments and which carry less than 110% life cover. But it doesn’t apply at all to capital growth, only income. Tell me, who is interested in avoiding, let alone evading, tax on interest income of less than 2%? How much demand do you think there is for that?
None of the pictures that you or Richard paint of Jersey are recognisable to me, especially in Guernsey where I operate. As I have stressed time after time on this site, those pictures of the islands are about a decade out of date. The evaders left here for Switzerland, then Singapore, a long time ago. Why on earth would they risk leaving their money here?
@Rupert
10,000s of thousands of accounts disclosed in settlements
Almost 50% of such accounts opting out of information exchange – the only possible reason being evasion
Do you really think we’re so daft as to not notice the reality of what is happening?
@Rupert
Life insurance.. oh dear Rupert… No the Swedish presidency revision to the EUSD amendments now includes all life insurance policies. There is no minimum mortality cover to be in scope. Even capital redemption bonds are in scope and so are annuities / pensions paying out less than 5 years.
And by the way.. there is more money in fixed income investments than equities, worldwide. So interest is indeed a major source of income to try evade tax on.
0.5% p.a. insurance bonds not a lot, really? Immoral IFAs using insurance to avoid the EUSD don’t explain to their client that that 0.5% fee is applicable to equities as well. Assuming a 50-50 mix of assets, the poor sap of a client is paying the equivalent of 1% a year on his interest assets to avoid a 0.4% withholding tax (20% x 25).
@Rupert
“Finally, the proposed extension to the EUSTD re insurance bonds only applies to bonds which are predominantly invested in cash or debt instruments “..
Not true.. the current version of the EUSD amendment changed last year to replicate the scope on funds. So now if more than 25% of the policy’s assets are linked to interest, the policy will be in scope.
As an paid advisor (ha) I highly recommend you be aware of the crapola you dishing out to your poor clients before they get caught like a deer in headlights.
Also I believe there wont be a permanent grandfathering of life policies, but that’s in the next amendment.
@Mark
I strongly suggest you take note Rupert
Mark – would you like to do an article (s) on that EUSD revisions will mean for various products and what advisers and investors should do?
Richard
Those “tens of thousands” of accounts have now been declared, by definition. On what basis do you conclude that there is a lot more out there?
You use the current tense of “what is happening”. I suggest that you rephrase that to “what was happening”. The difference is very material.
Mark
I would NEVER advise a client to use an insurance bond to shelter income alone, at current rates of return. I totally agree with you that even 0.5% per annum would be a disproportionately high fee to pay. But when invested in non-income producing investments aimed at capital growth (remember that the EUSTD is solely directed at taxing income) it becomes a different story altogether.
None of my clients with insurance bonds would come remotely close to having policies of which at least 25% is linked to interest. So no “crapola” I’m afraid (sorry to disappoint you).
The reality is that insurance bonds, if structured and used correctly, will remain a totally legitimate tax deferral tool for wealthy investors. The real irony of course is that the benefits of such policies are achievable by using policies issued out of Luxembourg or Ireland. So a wealthy UK resident doesn’t need to go “offshore” at all to legitimately defer UK tax. He uses an EU product issued by an EU life assurer to avoid the EUSTD. Who would have thought it?
@Richard Murphy
Rupert is head of investments of Generali insurance in Guernsey… and it’s shocking he doesn’t even know the tax implications of the products he deals in… and there’s ONLY one reason people use his product… PURELY FOR TAX BENEFITS.. (and not the ridiculous 1% life cover offered.. you can buy pure term life cover for less than ten percent of these unit-linked guys charge)…
The very fact he’s not even an half an expert in his own area shows that these guys just churn out stuff for commission. I am aware guys in his position get paid on the amount of business written.. so they’ll keep writing. C’est la vie.
Good idea, I’ll write some articles for advisers.
@Mark
I should add that whilst I do know who Mark is I have no idea who Rupert is and no information from this site or from me has been used to identify him
Mark
I can categorically state that you are nowhere near correct as to my identity.
As a result, your comments are even more absurd than they would have been if you had been right re my identity. I am not a director or employee of any life assurance company.
Of course insurance wrappers are used for tax benefits. Tax deferral actually – which is entirely legal as you very well know.
You say that I’m “not even half an expert”. Please tell me precisely where I am wrong. I eagerly await your response.
@Rupert
Those “tens of thousands” of accounts have now been declared, by definition. On what basis do you conclude that there is a lot more out there?
Are you serious Rupert? Can you not deduce two logical facts together? and someone pays you in the finance industry? Wow…
70,000 people declared with average fixed income portfolio of £100k. That’s £7 billion. Plus another £10 billion chose withholding tax.. i.e. £17 billion So you saying that’s the majority of fixed income in Jersey??? You either lying, confused or smoking weed.. and I take it you haven’t taken a toke recently and you’re not a lier..
Another bluff of yours is that most investors have less than 25% of their portfolio in fixed income? You expect anyone with half a brain to believe that!!! Look at any balanced portfolio fund.. you’ll see fixed incomes approaching 40%.. and your retirees mostly in equities? Yeah sure.. The more you write, the more your logic falls apart.
You in charge of placing clients into investments and you placing them into over 75% equities? Ha.. Your clients must have done extremely well since 2000. The usual IFA gumf that in the long run equities do the best. Now all your clients are deep under water, never mind taking your charges into account. I suppose you’re the type of investment broker supporting structured products and deem those non interest. Well over 90% of those scam products are fixed income.. BTW, do you not count bonds as interest?
The majority of clients on the Channel Islands are avoiding the savings tax. QED… but not for much longer..
Rupert, I suggest you silently put down your keyboard and rather reflect on your business etiquette.
Rupert
I’m not going to bother anymore replying to your inane ripostes. If your arguments at least had the intellect of a 100 plus IQ writer, I may be challenged to retort. You just carry on blindly doing what you do, and let’s see the status of your career in 5 years time… So as you say, don’t lose any sleep over it.
By the way, if you think that there are no more EUSD amendments in the pipeline after the current proposal, then I suggest you lay down your pipe.
Mark
Not sure about me smoking spliffs but you need to take some chill pills!
I’m not and have never been an “investment broker” I have never ever given investment advice. I’m a tax planning-based fiduciary who abhors tax evasion and focus 100% on legitimate tax planning arrangements which, increasingly, feature the use of insurance bonds as a very effective tax deferral wrapper.
Clients earning 2% interest or other income are not focused on avoiding income tax. They don’t even invest for income. They invest for long-term capital growth and are sheltering growth from CGT. They don’t believe for one monent that CGT rates will stay at 28% and even if it stayed at that level they wish to avoid it. They are well aware that gains from insurance bonds are taxed at income tax rates rather than CGT rates but they will never encash their bonds whilst UK resident, so that differential is academic. If you knew as much as you purport to know about insurance bonds then you wod be well aware that avoiding tax on policy gains os very easy with plenty of lawful planning techniques available. You would also be very well aware of how easy it is to invest in assets other than retail funds without falling foul of the PPB rules. I don’t think you are anything like the “expert” that you claim.
I’m well aware of the proposed EUSTD amendments and have no concerns about them. None of what is proposed so far is a worry. As to what might lie ahead, let’s wait and see shall we? Legitimate tax planning using EU life companies will survive.
And you’ve fallen into Richard’s trap of assuming that the Channel Islands are focused only on the EU. They aren’t. Lots of my clients are from the Far East, US and Middle East, using insurance bond structures for estate planning and not just tax planning reasons. The EUSTD has absolutely no relevance to them. My career will be going very nicely in 5 years time thank you very much, built entirely on clients with 100% tax-compliant arrangements. So thank you for your concern but I really don’t need it.
Obviously you are the type of aggressive blogger who resorts to insulting those who disagree with your views rather than engaging in debate. That’s up to you but you have clearly shown that your knowledge of the use of insurance bond wrappers by high net worth individuals is severely lacking and falls well short of what any true “expert” should know.
@Rupert
I have seen mark’s work
I assure you – you have no chance against his expertise
His ability to read and interpret these issues is outstanding
You’ve never convinced me your intellect could pull the skin off a rice pudding
And your assurances of your honesty suggest you do protest too much
Maybe guilty for that association with Guernsey’s sordid past to which you often allude?
Richard
I’m afraid your assurances count for nothing. Your total misreading of what the Channel islands’ finance industries actual deal with today makes that very clear. Mark’s “expertise” is not at all evident from his postings. Being a good or a bad debater does not mean that one’s viewpoint is right or wrong. The issue is the underlying point, not the ability to debate.
I’ve worked in the offshore industry for 30 years and I can state in absolute honesty that apart from 3 years working in a Caribbean tax haven when I saw things that made my hair stand on end, even 25 years ago when offshore standards were non-existent, I have always been engaged in proper, legitimate tax planning, not evasion. I’ve worked only for o
rganisations which play that game properly, ans in the many years when I’ve worked for myself I have never allowed those standards to slip. That’s why I rubbish your claims – I simply know that they are a totally inaccurate portrayal by you of Guernsey’s finance industry today. I cannot speak for Jersey or the Isle of Man – they may or may not be very different, even today. But I will not sit back and watch yoy or anybody else portray Guernsey today as you do. Your views about us are long out of date. Its as simple as that. Yes – many of us are engaged in legitimate tax avoidance planning which you call “abusive”. That’s your perogative. But its legal, its honest and its openly admitted. I can assure you that I know where the line is to be drawn and that there are many tax avoidance structures which I won’t tiuch even they are “probably” legal.
@Rupert
I’m reaching the point where the only explanation I can offer for the utter drivel which is wholly unsubstantiated that you write here is that you are paid to write it.
I doubt you are even engaged in this sector on occasion
Are you sure you’re not a PR copy writer?
I’m not
Which is why you may not appear again for a while
Richard
What have I written that is “utter drivel” ? You cannot make a statement like that without justifying it. I can assure you that its 100% accurate. Not what you want to hear obviously on this blog, but 100% categorically accurate about what goes on today.
I have never been paid to write any article or blog post in my life.