Jersey and the Isle of Man fail the EU Code of Conduct on Business Taxation

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The EU Code of Conduct on Business taxation has five criteria which are the basis for assessment. They are:

1. Whether advantages are accorded only to non-residents or in respect of transactions carried out with non-residents

2. Whether advantages are ring-fenced from the domestic market, so they do not affect the national tax base

3. Whether advantages are granted even without any real economic activity and substantial economic presence within the Member State offering such tax advantages

4. Whether the rules for profit determination in respect of activities within a multinational group of companies departs from internationally accepted principles, notably the rules agreed upon within the OECD

5. Whether the tax measures lack transparency, including where legal provisions are relaxed at administrative level in a non-transparent way

As many readers will know, the three Crown Dependencies opted for what has been called a zero / 10 system of taxation of business profits made by limited companies trading in, or registered in, their domains as a consequence of pressure brought to bear on them as a result of the introduction of the EU Code of Conduct.

The logic of the zero / 10 system, which was once called “a neat piece of foot work” by informed commentators in the Isle of Man, was always to get round the requirements of the EU code, and not to comply with it. I argued this in 2005 in a report I prepared for the States of Jersey. Unfortunately for the Crown Dependencies the EU could not consider the issue until their laws were in force, but now they are, and informed sources tell me that the EU has now considered the issue of Jersey and the Isle of Man, but not for Guernsey who have already agreed to reform their system. And that informed source tells me it is bad news for Jersey and the Isle of Man: they have failed on the first three criteria noted above, but have passed the last two.

I am not, as yet, sure whether Jersey and the Isle of Man know this. I've certainly seen no mention of it as yet in the press.I can assure you, however, that my sources says that this news is winging their way very soon. And it entirely justifies the claim that I've made since 2005, which is that these tax systems were deliberately created to get round the requirements of the EU Code of Conduct, and were never designed to comply with them.

It’s a shame the Jersey did not listen to me in 2005, when the then Chief Minister, Sen Frank Walker refused to meet me and the Scrutiny Panel that was discussing the issue, and when Sen Terry Le Sueur, who now fills a similar role said I was straightforwardly wrong. I hope he has the grace to admit he was wrong now, but I won't hold my breath.

I would, however, suggest that the people of Jersey take note. The only two organisations to have consistently got their tax and economic predictions for Jersey right are the Tax Justice Network and Tax Research UK.