Nothing to hide
Jersey is part of the British Isles but it is not part of England, nor of the United Kingdom. It has its own legislature, which is able to make certain temporary laws, but permanent laws need the ratification of the English Crown. The Island has its own courts, with appeals in civil cases to the Judicial Committee of the English Privy Council. The position as to ultimate legislative authority has been the subject of constitutional review and is not straightforward. The matter was considered by the Royal Commission on the Constitution in 1973 and reviewed in 2002 by Jersey’s Attorney General in response to potential EU tax initiatives. By convention, the exercise of the power of the Westminster Parliament to legislate for Jersey is restrained in domestic affairs, including taxation.
But Crown Dependencies are not tax havens. They are international finance centres of the highest quality. A tax haven does not just offer the absence of taxation, it also connotes secrecy and an unwillingness to cooperate with other jurisdictions, especially in the exchange of information. The contrast with Jersey and the other Crown Dependencies could hardly be more marked. The Chief Executive of Jersey Finance posted a response to Leader of the Opposition Ed Miliband’s recent call on the UK government and EU to clamp down on tax havens in the Crown Dependencies, including Jersey. Making clear its ‘disappointment’ about these ‘inaccurate accusations’, it said: ‘Once again the confusion between the terms “tax avoidance” and “tax evasion” creates a false impression of Jersey’s cooperative, well-regulated offshore financial centre.
‘Tax evasion is illegal in Jersey and it is a criminal offence – not a civil one – to facilitate or engage in tax evasion. The majority of Jersey’s activities are focused on the pooling of and structuring of international funds that have already been taxed.’ Ian Gorst, Chief Minister of Jersey, then extended an invitation to Miliband to visit the Island to learn how Jersey operates as a stable, reliable and responsible international financial centre.1
The Crown Dependencies are well-regulated jurisdictions that offer tax-neutral environments in which enterprise can thrive and which are vital to maintain and attract international trade. The stability of the Crown Dependencies makes them ideal for establishing structures operating elsewhere, sometimes in jurisdictions that are much less stable and where there is a clear need to be able to operate within a known and respected legal framework with robust governance and regulation.
They offer stability – both fiscal and political, allied with financial expertise and a level and quality of regulation that is internationally recognised. They also offer tax neutrality, which, coupled with stability, provides the key to the role of the Crown Dependencies in international business. Tax neutrality enables individuals and businesses to hold their assets in a form that does not escape tax but avoids cumulative liabilities to tax on the same income or gain in two or more jurisdictions. The Crown Dependencies provide a coherent legal framework for the ownership of assets across jurisdictions – a factor that is becoming increasingly important for both companies and individuals with international profiles.
In the private client world of trusts and estate planning, the work of the Crown Dependencies is now less about sophisticated tax planning and tax avoidance than ensuring the long-term protection of wealth and family businesses, often across generations and in multiple jurisdictions. This is coupled with succession planning and the governance of wealth and business. Further, individuals and their families want trustees, company directors and advisors who can add real value. Within the Crown Dependencies wealthy international private clients and their families can find expertise in wealth management, private banking and trusts coupled with security and stability.
The Crown Dependencies (the Channel Islands and the Isle of Man) are self-governing dependencies of the Crown. They do not belong to the UK, nor are they represented in parliament, and they are not members of the EU. Instead, they have particular constitutional relationships with the UK and a special status within the EU. This was negotiated when Britain decided to join the European Economic Community. The position is governed by Protocol Number 3 on the Channel Islands and the Isle of Man to the Treaty of Accession (1972) under which, very broadly, the Islands fall within the common customs area and the common external tariff. No other EU provisions apply, although all EU citizens must be treated in the same way as those of the UK.
Jersey was given the EU’s seal of approval in September last year by the EU Code of Conduct Group, confirming that the Island has satisfied the group that its corporate taxation complies with the Code of Conduct on Business Taxation. Jersey has done so while retaining its competitive position as a leading international finance centre. Jersey continues to honour – voluntarily – a commitment it has made to the EU member states by remitting retention tax.
On a much larger scale, banks in the Crown Dependencies provide huge sums to the City of London, which not only directly helps London as a finance centre but also provides capital for business worldwide. If anything, the banking crisis has highlighted the international benefits of this source of capital. According to the Foot Review, commissioned by the former Chancellor of the Exchequer in December 2008, ‘the Crown Dependencies make a significant contribution to the liquidity of the UK market’.
The individual Crown Dependencies can point to their own levels of expertise, economic benefit and regulation. Their true status is well known to external professionals in the finance and fiduciary sectors but it seems more work is needed when dealing with some politicians and the media. Perhaps one way forward lies in ever-closer cooperation to speak with one voice on these matters.
- 1. Extract from response on www.jerseyfinance.je/news/statement-in-response-to-comments- by-ed-miliband-regarding-action-against- the-crown-dependencies
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