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.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Guersney introduced Zero Ten in 2008 and Jersey last year…it’s hardly been in place long and from what I understand it will be scrapped and a new tax regime introduced by 2013.
Very little substance here once again. How on earth did the islands survive before 2008? Hardly ‘decades’ ago is it?
You’re also still banking on the assumption that the Isle of Man is required to comply at all which technically is not the case. We have seen how Ireland only caved in because of the terms of a necessary bail out.
@Mark
Get real
The 2008 model was illegal per the EU
And the UK will force you to change
You have no choice – understand political reality
Richard – thank you for yur advice to ‘get real’. You sound like a teenager! Surely you more than anyone here knows that there is no certainty in what you term ‘Political Reality’ and yes we do have a choice.
Zero 10 has been in place for no longer than 4 years – not for ‘decades’ as you claim. It was sanctioned by the EU in the first place! Certain countries are only objecting now because of the economic crisis and politicians are only banging drums in response. And if it disappears then so be it. It certainly won’t result in the apocolyptic scenario that you profess. I’m 40 years old, I grew up here. How on earth did we all survive before 2006? In fact the 90s saw a housing boom, immigration and a marked rise in prosperity – a good 15 years before Zero 10.
Furthermore, the more the VAT agreement is reduced (if this does indeed prove to be the case) the more isolated from the UK (of which we are not a member) the Island becomes. And this is where we do have a real choice.
Independence here is a political reality and then there will be even less ‘control’ over what we do. I feel that that course of action would be a shame as working with the UK has many benefits not least for the city of London which does very well out of our Islands.
Please don’t just dismiss peoples’ comments with your rhetoric. It is you that would do well to understand that if forced into a corner I would hope that the Isle of Man won’t just lie down.
Mark.
Isn’t it unreasonable to criticise the so called “belligerent” response of the Isle of Man without explaining the nature of the response, or indeed the response of the EU to the IoM’s submission on the CCBT?
@John
I gather the belligerence regards the EU’s apparent change of heart
I’m not sure there has been any such change of heart 0- the IoM scheme has never been approved in its entirety so the EU had the option to reject it now
I gather that’s not too popular
@Mark
I will dismiss this as being like a teenage’s thinking
Have you noticed the fate of small states who think they can over-sell financial services?
There is no chance at all you can be independent
You’re not now as a matter of fact
So you will comply
Deal with it, as some say
The whole point of my post is that independence is a road to take.
You have no need to patronise me with your ‘as a matter of fact’ ‘deal with it’ etc comment which serves no purpose other than to expose your arrogance and your lack of substance.
My last post here I think – I’ve realised that it’s very difficult to contribute to a forum and have a reasonable debate when the administrator finds your points so difficult to understand.
Mark
@Mark
I entirely understood you
Don’t doubt it
I just said you’re living in a fantasy
I saw through you in other words
Your problem if you want to do that – but it’s not healthy
Richard, there is the other option of a 0-0 which would have to ok as no discrimination. There was a paper I have read where this option was considered for the EU as a whole – Your thoughts?
@Rodger
But then Jersey goes bust
0-0 would need to be accompanied by very high consumption taxes and other indirect taxes such as import duties, licence fees and land taxes. The most obvious existing such models are Cayman, the Bahamas and Bermuda. It actually works quite well for them, although their spending got out of control in the boom years (sounds familiar), but would need to be accompanied by substantial financial support for the lower paid.
Such a model could work in many high tax countries, but the only difference between paying (say) 30% consumption taxes and 30% income tax is that with the former you have a choice on how much tax you pay, based on how much you spend out of your then-enhanced disposal income. Not a bad way to get sluggish economies moving again ?
It would be fascinating to see some financial models to see how it would work, and what rate of consumption taxes would be needed.
I was actually thinking of the extra business that would come in that would create jobs in all areas, the extra tax from this job creation, even at the current rate could make it worth while, if the principle of zero corporation tax has worked so far. It would be a bold move to be sure, but as Richard hasn’t said anything other than Jersey goes bust, that indicates that it is acceptable in principle as non-discriminatory.
I too would be interested to see projections, but also factoring in the off shoot of extra jobs and therefore taxation of the person rather than the company, either way services are paid for.