The EU Code of Conduct: an update

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Several people have asked me to do an update on what I know aboutprogress with the Crown Dependencies and the EU Code of Conduct.

First, I gather that the EU recommendations the code of conduct group that met last week was as I predicted: Jersey and the Isle of Man have both failed three of the five tests laid down by the code of conduct.

The Response of the three Crown Dependencies  was, I gather, quite different. As is widely known,Guernsey has given up without a fight, having accepted that the zero / 10 system is not compliant with EU requirements. That is why its tax system was not subject to review, and as such it did not technically fail.

Jersey has, I understand, offered to give up its enforced dividend distribution system for locally owned companies, which means that Jersey owned companies have to, in effect, pay taxes on dividends whilst those companies owned by non-Jersey residents do not This is the major ring fence to which the EU is taking objection, and always was. Jersey has, however, as a result done two things. The first is that it is agreed that it is failed tests one and two with regard to the EU code of conduct, and presumably it hopes as a result to get away with part three (which cannot be guaranteed). Second, it has created an enormous hole in its finances. Now any Jersey resident has a complete and perfect opportunity to avoid taxwhenever they live by simply holding their income in a company. How Jersey, already running a deficit of 20% of its government spending, things it can afford to do this is hard to imagine. I am aware that Jersey’s Philip Ozouf is calling this a “minor issue” today: I think he is spinning for all it is worth.

Finally, the Isle of Man has reacted very differently. It has apparently objected, and perhaps quite strongly, to the review findings. It has then this is consistent with reports I've had of earlier, quite belligerent, correspondence from the island to the EU.

All three reactions appeared to confirm the opinion that I previously offered. I gather even the Isle of Man have admitted that “concerns” have been raised. In that case I am satisfied my source of information was correct a week ago, as is my understanding of the varying reactions now.

The variety of those reactions does, of course, play into the hands of the EU. Guernsey has effectively given notice that except that zero 10 does not work. Philip Ozouf may wish to spin it otherwise,but in practice if Jersey's reaction is as I have noted then it too has given up the game: it has admitted that the ring fence it has created has to go under EU pressure,and that means that zero / 10 has failed because there is no way Jersey can survive on a 0% corporation tax for domestic business.

With two admitting defeat will the EU then give in to the Isle of Man? I really don’t think so. This one is a 3 – 0 win for the EU. Each island now needs to go back, scrap a decades tax policy, all of it based on a deception, and offer the world an honest, open and transparent tax strategy, which also meets the domestic needs of their population.

It will be interesting to see what happens.