The Jersey Law Review - October  2002

EDITORIAL MISCELLANY

THE SWORD OF DAMOCLES

The legend is that Damocles, envying the opulence of the court of Dionysius of Syracuse, was eventually invited to a sumptuous banquet offered by the tyrant.  As he sat at table he found overhead a heavy sword suspended by a hair thread.  Terrified to move, the banquet was a torment to him. A not too dissimilar threat hangs over the Island in relation to the EU Code of Conduct on business taxation, but public discussion of it has been surprisingly muted.

Everyone knows that the Island is fiscally autonomous.  The Charter of Queen Elizabeth I of 1562 says so.  This autonomy  has been confirmed many times by and on behalf of successive sovereigns down the centuries.  Jersey has its own tax system and the States of Jersey, the Island’s directly elected legislature, sets the rates of taxes and duties by which Jersey people are bound.  Our fiscal autonomy is an important part of our quasi-autonomous constitutional status.  Jersey is not an independent state, but it enjoys a very advanced measure of independence in relation to its domestic affairs.  It has its own courts and its own system of law – hence the existence of this Review.

Everyone also knows that Jersey is not part of the United Kingdom, nor is it part of the European Union.  Our people are represented neither at Westminster nor in the European Parliament in Strasbourg.  Our relations with the European Union are governed by Protocol 3 to the United Kingdom’s Treaty of Accession to the European Communities in 1972^[1].

Why then is it increasingly assumed in political and business circles that Jersey must adapt its tax system in order to respond positively to the tax initiatives of the EU?  In an article in this Review last year Colin Powell reviewed recent developments^[2].  Since then the threat posed to the Island’s tax structure by the OECD Harmful Tax Initiative has gone, thanks both to political firmness by the Policy and Resources Committee and to a helpful intervention by the USA.  It is the EU tax package which poses the remaining threat.  Admittedly this threat has diminished as a result of Jersey’s willingness to accept exchange of information on the savings interest of EU residents, provided that all EU member states and other jurisdictions covered by the Feira Summit decision (which include Switzerland and the USA) do likewise. The Directive on the Taxation of Savings (“the Savings Directive”), although not legally applicable, will be complied with.  There remains however the EU Code of Conduct, which is an entirely political initiative.  It creates no legal obligations, and even if it did, such obligations would not fall within the ambit of Protocol 3 and would thus not be binding upon Jersey.

The Code of Conduct is being driven by a Group chaired by the UK’s Paymaster General.  The Group’s report to European Finance Ministers (ECOFIN) in November 1999 identified a number of so-called “harmful” tax measures in member states.  The report embraced the Crown dependencies and listed four “harmful” measures in Jersey (tax exempt companies, international business companies, international treasury operations and captive insurance companies).  The meeting of ECOFIN in November 2000 resolved that the deadline for the removal of the effects of the “harmful” measures should be December 2005.  It is not clear whether Jersey was given any opportunity to enter reservations about measures listed as “harmful”.  On the other hand the identification of several equivalent measures in member-states bristles with reservations about whether the measures are indeed harmful and how they should be dealt with.

Why has Jersey been included in this EU initiative when it falls outside the EU’s fiscal territory?  The answer seems to be that Jersey has been drawn into this morass because it suits the interests of Whitehall.  The UK has been under pressure from other member states and Luxembourg in particular has indicated that if it is to be bound by the Code of Conduct so too must the Channel Islands.  The Swiss have agreed to negotiate on equivalent measures in respect of the Savings Directive but, as Switzerland is an independent state, will, if they do comply, set their own terms for compliance with this element of the tax package.  ButWhitehall, it seems, has decided that the Crown Dependencies will comply with all elements.  This commitment, it must be inferred, has, without any authority from Jersey’s elected representatives, been given by the UK to its European partners.  The democratic deficit is remarkable.  Yet, if all the measures identified in relation to Jersey were to be abolished by the end of 2005 there is little doubt that serious economic problems will ensue.  The EU apparently argues that it seeks only the removal of tax measures that favour non-residents over residents.  There is no problem, it seems, with zero tax regimes in the Caribbean, or the Irish “across the board” 12% rate of tax.  If Jersey were to adopt a similar non-discriminatory tax rate of (say) 10% or 15%, the EU would be content (at least for the time being). But to engage in fiscal upheaval in double-quick time in order to comply with EU demands is likely, especially in the current economic climate, to cause severe financial pain.  The UK is aware of this but continues to press Jersey to accept the principles of the Code of Conduct and the obligation to roll back “harmful” measures.   Worse still, it appears to be the case that the Paymaster General has threatened that if Jersey does not comply, consideration will be given to designating Jersey as a “non-co-operative jurisdiction”.  Power has been taken recently in an amendment to the Controlled Foreign Companies Regulations to do exactly that.  The likely result of such designation would be to make Jersey unattractive as a place in which to do business for many English companies, including banks (unless they are branches).  As an example of unprincipled bullying by an imperial power it is hard to match.

Yet from the perspective of the UK it is possible to understand how this unfortunate scenario has come to pass.  There is little understanding or sympathy (or both) in Europe for the unique constitutional status of the Channel Islands^[3], and those views are probably shared in parts of Whitehall.  If the Islands stand in the way of a fiscal policy agreed between the UK and its European partners we should perhaps not be surprised if our interests are given a low priority, or ignored.  Of course the proper response on the part of the UK to pressure from Europe would be that Jersey is not part of the EU and is responsible for its own fiscal affairs;  the UK can try to persuade the Island to conform, but can do no more.  It seems that this constitutionally proper approach is no longer always being followed.  Indeed the experience of the past two or three years suggests that where the Island’s interests (whether economic or political) conflict with those of the UK, the Island’s interests will suffer.  To be fair it must be very difficult for a Whitehall department to negotiate from a particular standpoint or to seek a particular outcome on behalf of the UK while Jersey expects that same department to argue for an entirely different result on its behalf.  The responsibility to defend Jersey’s interests on the international scene, and particularly in Europe, is becoming difficult to reconcile with the UK’s obligation to represent its own citizens.

What is the solution?  Constitutional lawyers should have no doubt.  The solution is to remove the conflict and to allow Jersey to represent its own interests internationally.  Does this mean independence?  Perhaps, but not necessarily.  What is certain is that Jersey needs to develop a more proactive international personality.  Jersey can no longer always rely upon the UK to represent its economic or political interests.  Recent reports of a proposal that Jersey should execute on its own behalf a Tax Information Exchange treaty with the US are a welcome indication that the UK understands the difficulty. But what of independence?  Once the preserve of political extremists this possibility is being increasingly mooted as the ultimate solution to the clash between irresistible force and immoveable object.  Other small communities have done it. Jersey is already virtually autonomous; it is only in the spheres of defence and international relations that the UK retains responsibility.  The Island’s defence could be entrusted to a bilateral treaty and/or to NATO.  The assumption of responsibility for external affairs is not an insuperable problem; indeed Jersey could even establish a federation with Guernsey to deal with the external affairs of the Channel Islands.  The possibility  of independence is worthy of more serious and detailed consideration than it has hitherto been accorded.  Poor Damocles was too frightened to move.   Jersey must not suffer from this paralysis of mind or body. 

ADMINISTRATIVE APPEALS

In a note entitled “The Increasingly Strident Cries of Woolf” and published in this Review last year^[4], the enactment of amendments to the RCR in relation to administrative appeals was foreshadowed.  Those amendments have now, after consultation with the Law Society of Jersey and departments of the States, been made.  The Royal Court (Amendment No. 19) Rules 2002^[5]came into force on September 2nd, 2002.

            The new procedure for administrative appeals is significantly different from the old.  Pursuant to the Bailiff’s expressed determination to ensure speedier access to justice the whole process from the lodging of a notice of appeal to the date of hearing should take no longer than four months.  The procedure applies to appeals “from an administrative decision of a Committee of the States or other body or person in exercise of a right of appeal conferred [by statute]^[6].

In order to meet the tight timescale prescribed by the Rules the appellant is obliged within five days after service of the notice of appeal to apply for a date to be fixed for the hearing of the appeal.  Except with the leave of the Bailiff the day fixed for the hearing shall not be more than four months from the date of the service of the notice.  It is anticipated that most appeals should be heard in half a day.  The time for oral submissions will therefore be limited and written submissions will assume greater importance than in the past.

Affidavits to be filed on behalf of the Committee and the appellant will provide the factual matrix.  Cross-examination on affidavits can be expected to be rare.  In this respect the practice will be little different from judicial review.  Not less than fourteen days before the date of the hearing of the appeal, the appellant and the Committee shall each furnish to the Court (and serve upon one another) a written statement of the submissions to be made^[7].  It is to be noted that the first affidavit to be filed is that of the Committee.  The Committee must set out –

“(a)      a statement of the decision from which the appeal is brought; and

(b)        the facts material to the decision and the reasons for it and exhibiting all documentary evidence relating thereto”^[8].

Appellants and their advisers should pay heed to the note in the schedule prescribing the form of Notice of Appeal which provides that the grounds of appeal should be stated with sufficient particularity to make clear the nature of the appellant’s case.  It is to be doubted whether a parroting of the statutory formula will be adequate.  Rule 12/5(1) provides the Court with a wide power to make orders for costs if the appellant or the Committee fails to comply with any requirement of the Rules.

It remains to be seen whether the new procedure will provide in practice a more effective system of adjudication of administrative appeals.

Return to Contents