Jersey’s future in the light of world economic events
Those individuals who have chosen Jersey as the centre of choice for investment and wealth management might have been feeling concerned about recent news headlines. In particular, the decision by Jersey’s government to sign a Tax Information Exchange Agreement with the UK and the news that Jersey (along with other offshore centres) was to be discussed at the London G-20 Summit. Are there genuine reasons for worry?
Jersey has now signed 11 TIEA agreements with other jurisdictions (including the US as well as the UK) after prolonged negotiations and discussions led by former chief advisor to the government, Colin Powell. It was this decision to cooperate in providing tax information which led to Jersey’s position on the so-called ’white list’ released following the summit.
The provisions of a TIEA are complex and probably beyond the detailed analysis of some media commentators. So it might be useful to see what the agreement that Jersey has entered into actually means, using the UK as an example.
For HM Revenue and Customs to make a request for information under the TIEA, it must provide a great deal of detail to the Jersey authorities. The UK cannot, for instance, initiate any ’fishing expeditions’; it does not allow the disclosure of lists of clients; it does not allow the disclosure of lists of bank accounts, and it does not allow any automatic exchange of information.
The strict rules of engagement require, in writing, the identity of the individual under examination; the period in which the information is requested; a precise description of the nature of the information requested; the tax purpose for which the information is sought; the reasons behind the request and how it is relevant to tax investigation, and a statement that the request conforms with the law and administrative practices of the government making the request, and
a statement that the requesting party has pursued all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulty.
The TIEAs which have been in existence for several years with other nations have not resulted in any body-blow to Jersey’s financial services industry.
Already in existence, before the TIEA was signed with the UK, were the powers provided by Section 20 of the Tax Management Act 1970 and this UK legislation which in themselves provide considerable power for the UK government to require disclosure of information. So it could be argued that the TIEA actually provides nothing which should unsettle legitimate investors, but it does, at the same time, enable the island to demonstrate
it is not a place which assists tax evaders by hiding the wealth behind smoke and mirrors.
The United Kingdom and the IMF have recently recognised Jersey’s ongoing commitment to comply with international standards of anti-money laundering, counter terrorist legislation and general financial regulation. The IMF found in its recent assessment that Jersey’s ability to comply with international standards is high and in its comments on offshore centres generally, it takes the line that "they are superior to those of other jurisdictions".
From a political point of view, Jersey’s strong British connection means a familiar system of government, with little or no corruption and a sound legal institution.
It is a common misconception that Jersey, like other offshore centres,
relies on secrecy
. This is not so:
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It cooperates with other governments on tax matters. It has, for example, entered into TIEAs as described above. It has also entered into a political commitment to the OECD’s principles of effective exchange of information.
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It has built up a diverse financial services industry with the experience and resources to offer very competitive financial services for tax reasons and otherwise. Over the years it has, for example, developed very sophisticated private banking, trust and funds businesses that are capable of competing with on-shore centres simply from a service level point of view.
There is a strong argument that by encouraging competition in a global financial services market, offshore centres help to stimulate the global economy. Competition is an essential element of any developing economy.
Competitive financial services create tax efficiencies for multinational corporations and for individuals and can be said to increase the level of foreign investment in higher tax countries, the result being that total economic activity grows and all parties benefit. This might explain why higher-tax countries have (perhaps until now) done very little to stop the use of offshore centres.
Jersey, along with other well-regulated offshore centres, has much more to offer the globalised world than tax breaks. It a more than capable competitor in the global financial services market, which is why it remains open for business whilst other similar sized jurisdictions have not.