Responding
to International Tax Initiatives
Colin Powell
Following the global financial crisis in 2008
there have been a number of international tax initiatives the worldwide
application of which has been promoted by the G7/8, the G20, and the OECD. This
article explores how, as international finance centres, Guernsey and Jersey
have been affected both directly and indirectly. Initially the focus was on
jurisdictions’ compliance with international standards on exchange of
information on request. Subsequently the emphasis shifted to a global standard
for the automatic exchange of information. To help fight against tax evasion
and maintain revenues, the international community also mounted initiatives to
enhance transparency on beneficial ownership and revamp the work on harmful tax
practices. A positive aspect of this global approach has been the establishment
of a level playing field in assessing compliance in contrast to the past
discriminatory approach often adopted towards jurisdictions such as Guernsey and
Jersey.
Background
1 International attention
was first focused by the OECD on Jersey, Guernsey and other so-called “tax
havens” when it produced its report on harmful tax competition in 1998,[1] and
published a list of tax havens in its 2000 report “Towards Global Tax
Cooperation”. This
led, in 2002,
to Jersey, Guernsey and other centres entering into political
commitments to support the OECD tax initiative on transparency and information
exchange through the negotiation of tax information exchange agreements to an
agreed international standard. However, what gave a real impetus to
transparency and information exchange was the financial crisis in 2007/2008.
2 In 2008, G20 announced that lack of transparency was one of
the root causes of the global financial crisis[3] and, at
the London summit in April 2009, it called for action against non-cooperative
jurisdictions, including tax havens, and stated that the era of bank secrecy was
over.[4] At
the same time, the OECD published a list of countries assessed against the
international standard for exchange of tax information.
The consequence was that in September 2009 the OECD restructured the Global
Forum on Transparency and Exchange of Information for Tax Purposes which set
the standard for exchange of information on request (EOIR) and introduced a peer
review process for assessing compliance with the standard.
3 However, the USA did not feel EOIR went far enough in
tackling tax evasion and sought through the enactment of the Foreign Account
Tax Compliance Act 2010 (FATCA) to oblige foreign financial institutions
worldwide to perform specified due diligence procedures and to report
automatically to the US Internal Revenue Service (IRS) financial account
information for all US persons. If this was not done, withholding agents in the
US were required to withhold 30% of the gross amount of certain US connected
payments made to foreign financial institutions.
4 G8, G20 and a group of five EU Member States (France,
Germany, Italy, Spain and the UK) saw this automatic exchange of information
(AEOI) as something that should have global application and the OECD was
requested to develop a single, global, common reporting standard for AEOI.
Separately, the UK took the view that the financial account information that
the Crown Dependencies and the Overseas Territories were being required to
provide automatically to the USA under FATCA should also be made available
automatically to the UK under a broadly parallel intergovernmental agreement.[6]
5 This was all part of a
flurry of activity with international organisations and individual
jurisdictions, not least the UK, seeking to establish their credentials in
respect of a raft of proposals designed to tackle tax evasion, tax avoidance,
harmful tax practices and aggressive tax planning to ensure that all taxpayers
pay their fair share of taxes.
6 G20, at their summit in
St Petersburg in September 2013, produced for the first time a tax annex to the
Leader’s Declaration.[7] To
quote from the first paragraph of that annex—
“G20 has been at the forefront of efforts to
establish a more effective, efficient and fair international tax system since
they declared the era of bank secrecy over at the G20 London summit in April
2009. In an increasingly borderless world, strengthening international
cooperation in tax matters is essential to ensuring the integrity of national
tax systems and maintaining trust in governments.”
7 The OECD and G20 have
worked hand in hand over the past 5 years and the result has been significant
reforms to the international tax system, from eliminating strict banking
secrecy, to improved tax transparency through stronger international
cooperation and, most recently, addressing the type of tax avoidance which sees
multinational companies’ profits separated from the underlying economic
activity and value creation.[8]
8 The EU has also been a
key player. On 6 December 2012, the European Commission presented an Action
Plan for a more effective EU response to tax evasion and avoidance.[9] The
plan set out a comprehensive set of measures to help Member States protect
their tax bases and recapture billions of euros lost through these practices.
The Commission has been at the forefront of efforts to bolster the fight
against tax fraud and tax evasion. In particular, the fight against tax evasion
and tax fraud ranks high on the 2015 Work programme of the Commission.
9 The Channel Islands have
inevitably been involved in this process. First, they have always made it clear
that they wished to comply with international standards that have global
application and to be recognised as compliant. Therefore, as these standards
have developed, so the Channel Islands have been quick to commit to them.
Secondly, the UK has wanted to be seen as a leader in the field—this was
particularly the case at the G8 summit in 2013 when the UK held the presidency.
The UK has not wanted to give other G8/G20 countries the opportunity to ask “how
can you expect us to follow your lead when you have not been able to get your
own dependent territories to follow you?”. Hence the UK has made a
succession of requests to the Crown Dependencies and the Overseas Territories
to join them in their commitment to a number of international initiatives.
10 The UK has continued to
seek to take a leadership role. To quote Prime Minister Cameron in a speech in
Singapore in July 2015—
“When I put tax, trade and transparency at the top of the G8 agenda for the first time back in Lough Erne in Northern
Ireland two years ago many thought it would be a flash in the pan. Another one
of those communiques with words that don’t really mean anything.
But today over 90 countries—including Singapore—have agreed
to share their tax information automatically by the end of 2018, meaning that
more people and companies will pay the tax that is due. At the same time we are
also working with the OECD and G20 to finalise an international plan to stop
companies from artificially shifting their profits across borders to avoid
taxes.”[10]
11 What can be said is
that the global approach that is now central to these initiatives has been
welcomed by the Channel Islands. In the past there was a tendency to focus on so
called “tax havens” or “offshore centres” as if they
were the sole or main source of the problem. As a result, the Islands often
felt they were being discriminated against. Now the world at large is being
expected to respond to the initiatives and a critical light is being shone on
jurisdictions generally. The OECD still headlines the attack on offshore tax
evasion but OECD officials have emphasised that the word “offshore”
now has a generic use relating to activities that take place in a jurisdiction
other than the jurisdiction in which the taxpayer is resident. It is not being
used, as previously, to focus specifically on so-called “tax havens”.
12 With a global approach,
it is believed the Channel Islands’ competitive position can be enhanced
because of the strength of their current practices, such as the regulation of
trust and company service providers, which others are now being expected to
emulate.
13 EU Commissioner
Moscovici made the following statement in May 2015 on the occasion of the visit
to Brussels of the Chief Ministers of Jersey and Guernsey—
“I very much welcome the active engagement of
the Channel Islands in the key initiatives involved in the fight against tax
evasion, fraud and abusive tax avoidance in which they are important partners
of the EU. Their commitment to the adoption of the Common Reporting Standard on
automatic exchange of information, alongside the EU Member States, is
particularly positive.”
14 Earlier
in the year the Secretary General of the OECD also wrote to Jersey saying—“I
congratulate you in the leadership demonstrated in supporting as an ‘Early
Adopter’ the rapid implementation of the new common global standards for
the automatic exchange of information”, a view shared by Pascal
Saint-Amans (Director, OECD Centre for Tax Policy and Administration) in
thanking Jersey for its excellent work in recent years. Similar sentiments have
been expressed for Guernsey.
15 Having
set the scene, the key international initiatives are now addressed in more
detail. In doing so, the experience of Jersey has been drawn on for the most
part, but much if not all that is said will apply equally to Guernsey.
Exchange of information on request (EOIR)
16 The Global Forum on
Transparency and Exchange of Information for Tax Purposes (“the Global
Forum”) is the multilateral framework within which work in the area of
transparency and exchange of information for tax purposes has been carried out
by both OECD and non-OECD economies since 2000. Since its restructuring in
2009, the Global Forum has become the key international body working on the
implementation of the international standards on tax transparency. The Global
Forum ensures that these high standards of transparency and exchange of
information for tax purposes are in place around the world through its
monitoring and peer review activities, technical assistance, peer-to-peer
learning and skills support.
17 The Global Forum at the
time of writing has 127 members and has delivered more than 150 peer review
reports. Overall ratings on implementation have been allocated to 81
jurisdictions, revealing the following results: 21 jurisdictions are
“Compliant”, 47 jurisdictions are “Largely Compliant”,
10 jurisdictions are “Partially Compliant” and 3 jurisdictions are
“Non-Compliant”. Jersey and Guernsey are rated as “Largely
compliant” a rating they share with Germany, Italy, the Netherlands, the United
Kingdom and the USA.
18 Guernsey and Jersey
both negotiate tax agreements to the international standard such as Tax
Information Exchange Agreements (TIEAs) and Double Taxation Agreements (DTAs)
under a Letter of Entrustment from the UK Government. While the UK retains
ultimate responsibility for the Islands’ international relations, through
a Framework Agreement signed between each Island and the UK, it is recognised
that the Islands have an international identity which is different from that of
the UK and that the interests of the UK and the Islands can also differ.[11] For
example, the UK interests can be expected to be those of an EU Member State and
the interests of the Islands can be expected to reflect the fact that the
UK’s membership of the EU only extends to the Islands in certain
circumstances as set out in Protocol 3 of the UK’s Treaty of Accession.
However, when treated as a “third country” Jersey and Guernsey seek
to meet the requirements of “equivalence” with EU legislation to
help ensure that any barriers to EU market access can be overcome. This applies
to such matters as anti-money laundering (AML), financial regulation, data
protection and the application of sanctions.
19 The Channel
Islands’ international standing is also reflected in their relationship
with the OECD. By a Declaration of 1990, it was confirmed that they are bound
by the OECD Convention and are obliged to adopt on the same terms as the Member
States the decisions of the OECD, such as the Codes of Liberalisation on
Capital Movements and Current Invisible Operations, and the recommendations adopted
by the organisation. Thereby the Islands may be considered to be de facto members. However, the
Declaration states that in a particular case it can be specifically indicated
that the obligations do not apply. This was the case in 1998 when the UK decided
that the Crown Dependencies and the Overseas Territories should be excluded
from the recommendations on harmful tax competition as they applied to the OECD
Member States so that they could be included in the list of so-called
‘tax havens’, published in 2000 but long since overtaken, and
treated accordingly.
20 Jersey and Guernsey are
members of the Global Forum. Jersey is a member of the Forum’s Peer
Review Group and for three years was one of the vice-chairs of the Group.
Jersey is currently a vice-chair of the Forum’s AEOI Working Group of
which Guernsey is a member. Jersey and Guernsey are also joined through the UK
with the Convention on Mutual Administrative Assistance in Tax Matters which
provides multilaterally for EOIR, AEOI and spontaneous reporting of tax
information.
21 All of the Channel
Islands’ TIEAs are based on the Model TIEA Agreement developed by the
OECD Global Forum Working Group on Effective Exchange of Information. This
provides for the same standards as those included in art 26 of the OECD’s
Model Convention with respect to Taxes on Income and Capital (“the Model
Tax Convention”). Both use the standard of “foreseeable
relevance” to define the scope of the obligation to provide information.
Both require information exchange to the widest possible extent, but do not
allow “fishing expeditions”, i.e.
speculative requests for information that have no apparent nexus to an open
enquiry or investigation. Both set the same standard of confidentiality using
the same terms.
22 The OECD commentary on art 26
of the Model Tax Convention thus serves as commentary to these matters where
raised in a TIEA. Regarding the level of confidentiality which is expected to
be applied, the commentary on para 2 of art 26 of the Model Tax Convention,
which corresponds with art 9 of the Model TIEA, is absolutely clear in this
respect—
“The confidentiality rules of paragraph 2
apply to all types of information received under paragraph 1, including both
information provided in a request and information transmitted in response to a
request. Hence, the confidentiality rules cover, for instance, competent
authority letters, including the letter requesting information. At the same
time, it is understood that the requested State can disclose the minimum
information contained in a competent authority letter (but not the letter
itself) necessary for the requested State to be able to obtain or provide the
requested information to the requesting State, without frustrating the efforts
of the requesting State. If, however, court proceedings or the like under the
domestic laws of the requested State necessitate the disclosure of the
competent authority letter itself, the competent authority of the requested
State may disclose such a letter unless the requesting State otherwise
specifies.”
23 At
the end of August 2015, Jersey had received 384 requests for information from
20 jurisdictions. In a number of cases, the notice calling for the information
to be provided, issued by the Jersey Competent Authority, has been the subject
of appeal. Initially the Taxation (Exchange of Information with Third
Countries) (Jersey) Regulations 2008 provided for an appeal to the Royal Court,
a subsequent appeal to the Court of Appeal and a further right of appeal to the
Privy Council. However, this gave rise to criticism by requesting jurisdictions
of consequential delays in the exchange of information, particularly where
those jurisdictions had much more limited appeal provisions. In 2013, this led
to France putting Jersey on to a “blacklist” of non-cooperative
jurisdictions, and more generally led Global Forum assessors to the conclusion
that Jersey was not complying effectively with the international standard. As a
result the Regulations were amended in 2013 and appeals were limited to making
application for a judicial review and subsequent appeal to the Privy Council.
The use of these appeal provisions however is still having the effect of
seriously delaying the exchange of information. Furthermore the provisions
themselves have been challenged in a long running Norwegian case on the grounds
that they are contrary to Human Rights and/or that the initial appeal rights
could not be removed by Regulations and should have been dealt with through
primary legislation. The judgment of the Royal Court is awaited.
24 Other
jurisdictions have been faced with similar problems arising from their appeal
provisions. For example, Luxembourg has decided to abolish the appeal process
completely and it is no longer possible to appeal the executive decision to
exchange the information requested. The only possibility is an appeal against
the sanction that is applied for failure to provide the information, which is a
general recourse for all administrative sanctions and does not impact upon the
exchange of information.
25 One
of the issues complained of in a number of jurisdictions is how appellants can
present an appeal if they do not have sufficient information about the nature
of the request from the requesting jurisdiction. However, the international
standard requires that the letter of request is not made available to the
taxpayer or the entity holding the information sought. This constraint also
applies to what is described as a statement of reasons. The Jersey Regulations
initially referred to the need for such a statement to be produced but this was
criticised by assessors of Jersey’s compliance with the international
standard and the Regulations were amended to remove this requirement. Other
jurisdictions have faced similar criticism by assessors. Luxembourg has enacted
a new Law on EOI,
which provides that only information that is essential to the information
holder in order to identify the information that needs to be provided can be
disclosed in the injunction letter. The article specifically provides that the
letter of request cannot be disclosed. As a consequence of this enactment,
Luxembourg has changed its injunction letters which now include (1) the
requesting state (for the information holder to identify the legal basis for
the request), (2) the elements necessary to identify the requested information
including the years for which the information is needed, (3) the deadline to
provide the information, (4) the anti-tipping-off requirement, if requested,
(5) the sanctions applicable for default to provide the information and (6) a
notice informing that no appeal rights are applicable.
26 The international tax information exchange standard can be
met through either a Tax Information Exchange Agreement (TIEA) or a Double Tax
Agreement (DTA). The advantage of a DTA is that it offers benefits to
individuals and the business community through the avoidance of double taxation
or reduced rates of withholding tax, in addition to providing for exchange of
information to the international standard. However, the majority of
jurisdictions with whom Jersey has sought to negotiate an agreement have not been
prepared to consider a DTA on the ground that they would derive little, if any,
benefit from such an agreement because Jersey is a zero corporate tax
jurisdiction.
27 The standard rate of
corporate tax of 0% is based on two key principles. One is the EU Code Group on
Business Taxation’s principle of non-discrimination between resident and
non-resident owned companies. The other is the principle of tax neutrality
combined with transparency. Jersey’s role as an international finance
centre can be described as one of acting as a financial entrepôt in
facilitating the investment of funds drawn from the world at large into
European financial markets. The view is held that the return to the investors
should be taxed in their home country, and the business activity generated by
the investment in Europe should be taxed in the jurisdiction where that
activity takes place. Because Jersey does not have DTAs with the countries
involved, there is a need to adopt a tax neutral regime to avoid discouraging
these investment flows which contribute to jobs and growth in the EU Member
States. The Government of Jersey recognises, however, that for tax to be levied
where it is properly due, it is necessary for the countries concerned to have
accurate tax information. With this in mind, Jersey has given its full support
for the transparency principles central to the current G20, OECD and EU tax
initiatives.
28 At the time of writing, a total of 37 TIEAs and 10 DTAs
have been signed by Jersey, of which 33 TIEAs and 8 DTAs are in force.[13]
Almost without exception, the delay in bringing agreements into force is due to
the length of time taken by the other parties to the agreements to complete
their domestic procedures for the ratification of the agreements. In addition,
since June 2014 Jersey has been party to the Multilateral Convention on Mutual
Administrative Assistance in Tax Matters and through this information can be
exchanged with over 50 jurisdictions. Some jurisdictions that were negotiating
a TIEA with Jersey have now decided to rely on the provisions of the
Convention.
29 Africa has been
identified as an area with good business opportunities for Jersey as an
international finance centre which would also be of benefit to the developing
countries. In November 2014, Jersey Finance launched the “Value
to Africa” Report[14]
which was commissioned to look at the role international financial centers
could play in the growth of developing countries. The report, conducted by the
independent research organisation, Capital Economics, found that, while Africa
is one of the fastest growing regions globally, it needs to invest US$85 trillion
in infrastructure by 2040 in order to sustain that growth. This capital cannot
be generated locally or through international aid, with the research paper
estimating a shortfall of US$11.4 trillion in investment, US$6.1 trillion of
which will need to come from outside the continent.
30 These
business/investment opportunities will be more easily developed if there is a
DTA. Great importance is attached to the DTA which Jersey
signed with Rwanda in June 2015[15] as
the first such agreement with an African country, and one that will support
inward investment into Rwanda and further enhance the existing close economic
and political relationships.
31 Approaches have been
made to other African countries to initiate negotiations on entering into
similar agreements, and it is hoped that the agreement with Rwanda will
encourage such negotiations. It is also intended that, alongside the Double
Taxation Agreements (DTA), Bilateral Investment Treaties (BIT) will also be
negotiated. Support has also been extended through assistance with asset
recovery and through the enactment of legislation on Vulture Funds.[16]
32 The combination of a
DTA and a BIT will support inward investment, thereby linking the role of
Jersey as an international finance centre with the investment needs of the
developing countries. The role that Jersey can play in this respect is also
reflected in the presence in the Island of over 20 mining and natural resources
companies with interests in Africa.
33 Through the inclusion
in the DTAs of provision for automatic exchange of information, further
assistance can be given to developing countries in the fight against tax
evasion, corruption and other financial crime.
34 What can be said in
concluding the section on EOIR is that, whereas some have been critical of EOIR
because a jurisdiction has to have sufficient information before it can make a
request, EOIR will have an important role to play in the future. This is
because, with AEOI, tax authorities will have greater information upon which to
base more detailed requests. With AEOI, it is expected therefore that the
number of EOIRs will increase significantly.
35 The OECD has been asked by the G20 to
propose possible tougher incentives and implementation processes to deal with
those countries which fail to respect the Global Forum standard on EOIR. All
jurisdictions are to be expected to review their existing measures in relation
to the lack of the effective EOIR, and explore the possibilities of introducing
new measures to incentivise EOIR, with the Global Forum rating as a factor in
their application. These proposals have been included in the report of the OECD
Secretary General to G20 Finance Ministers for their meeting in Ankara in
September 2015.
Automatic exchange
of information (AEOI)
36 For many years
countries have been engaging in AEOI in order to tackle offshore tax evasion
and other forms of non-compliance but there was no single international
standard expected to have global application. In 2013, in their St Petersburg
Declaration, G20 leaders laid the foundations for further progress in tax
transparency: in addition to calling for the completion of the current schedule
of the Global Forum’s peer reviews and allocation of ratings, they
endorsed the OECD proposal for a new global standard for the automatic exchange
of information, and mandated the Global Forum to establish a mechanism to
monitor its implementation. G20 finance ministers and central bank governors
reaffirmed the importance of global tax transparency in their Communiqués
of February and September 2014,[17]
endorsing the new standard on AEOI, and reiterating the importance of continued
progress in meeting the international standards of EOIR and AEOI.
37 With the strong support
of G20, the OECD together with G20 countries and in close cooperation with the
EU and other stakeholders has produced the Standard for Automatic Exchange of
Financial Account Information[18]
which builds on the FATCA agreement to maximise efficiency and minimise costs.
The Standard consists of—
(1) The
Common Reporting Standard (the CRS) that contains the due diligence rules for
financial institutions to follow to collect and then report the information
that underpin the automatic exchange of information;
(2) The
Model Competent Authority Agreement (the CAA) that links the CRS to the legal
basis for exchange, specifying the financial information to be exchanged;
(3) The
Commentaries that illustrate and interpret the CAA and the CRS.
38 There are three Model
CAAs. One is a bilateral and reciprocal model designed to be used in
conjunction with a DTA or TIEA, particularly where the Multilateral Convention
on Mutual Administrative Assistance in Tax Matters cannot be used as the legal
basis. The second is a multilateral CAA that can be used to reduce the costs of
signing multiple bilateral agreements (although the actual information exchange
would still be on a bilateral basis) and would most often be used in
conjunction with the Convention. The third is a non-reciprocal model for use,
for example, where a jurisdiction does not have an income tax.
39 In October 2014, in
Berlin, 51 jurisdictions, including Jersey and Guernsey, signed a Multilateral
Competent Authority Agreement (MCAA) as part of putting the commitment to CRS
into action. This Agreement is based on the Multilateral Convention on Mutual
Administrative Assistance in Tax Matters which at the time of writing has been
signed by 87 jurisdictions,[19]
including many developing countries. At the end of May 2015, the number who had
signed the MCAA had increased to 61, of which 50 are committed to exchange
information in 2017 and 11 are committed to exchange information in 2018. Those
committed to exchange information in 2017, known as the “early
adopters”, include Jersey and Guernsey.
40 Earlier reporting is
required under FATCA and the UK IGA. Regulations were made in Jersey in 2014
and guidance issued. First reports under FATCA for the second half of 2014 have
been received and will be transmitted to the IRS by September 2015. For the UK
IGA, information for 2014 and 2015 does not have to be sent to HMRC until
September 2016.
41 The UK is keen to move
from the IGA to the CRS. The question is whether the transition should be
undertaken when the CRS is introduced by the early adopters on the 1 January
2016 with reporting in 2017, or a year later. This question raises issues
surrounding the provision of information to the UK under the IGA at an earlier
stage than under the CRS, and the position of some competing jurisdictions such
as Switzerland and Singapore who will not be reporting information until 2018.
The UK IGA differs from the CRS in that it incorporates an annex providing for
an alternative reporting regime for those UK reportable persons who are
“resident non-doms”. No such provision can be made under the CRS.
There is concern that those categorised as “resident non-doms” will
relocate their accounts to jurisdictions such as Switzerland if information on
their financial accounts does not need to be reported until a year later than
would be the case if they retained their account in Jersey.
42 For the CRS,
Regulations have been drafted which will cover the exchange of information with
jurisdictions that have signed the MCAA or any other agreement (e.g. TIEA or DTA) to which Jersey and
another participating jurisdiction is a party providing automatic exchange of
information. The Regulations will be supported by guidance which will draw on
the CRS Commentaries. The guidance will also refer to the position taken on the
various optional provisions which are intended to provide greater flexibility
for financial institutions and therefore reduce their costs. There are 15 main
areas where the Standard provides options for jurisdictions to implement as
suited to their domestic circumstances in order to provide for easier
implementation, and reduced burdens, without impacting on the purpose or
effectiveness of the CRS. The options to be adopted include not requiring the
filing of nil returns, and allowing third party service providers to fulfil the
obligations on behalf of the financial institutions.
43 The CRS also provides
for jurisdictions to identify financial institutions and financial accounts
that present a low risk of being used for tax evasion as Non-Reporting
Financial Institutions or Excluded Accounts (i.e. non-reportable accounts). It is expected that each
jurisdiction will have a single list of low risk financial institutions and a
single list of low risk financial accounts with respect to the standard and
that these lists will be published. The Global Forum will assess the
jurisdiction specific lists, which can be expected to be similar to the
equivalent lists compiled for FATCA, to ensure the conditions of the Standard
have been met.
44 For
those jurisdictions to be covered by the MCAA, the following procedures will
need to be followed[20]—
“1 A
Competent Authority must provide, at the time of signature of the Agreement or
as soon as possible after the jurisdiction has the necessary laws in place to
implement the Common Reporting Standard, a notification to the Co-ordinating
Body Secretariat:
(a) that
its Jurisdiction has the necessary laws in place to implement the Common
Reporting Standard and specifying the relevant effective dates with respect to
Pre-existing Accounts, New Accounts, and the application or completion of the
reporting and due diligence procedures;
(b) confirming
whether the Jurisdiction is to be included the list of non-reciprocal
jurisdictions;
(c) specifying
one or more methods for data transmission including encryption;
(d) specifying
safeguards, if any, for the protection of personal data;
(e) that
it has in place adequate measures to ensure the required confidentiality and
data safeguards standards are met and attaching the completed confidentiality
and data safeguard questionnaire; and
(f) a
list of the Jurisdictions of the Competent Authorities with respect to which it
intends to have this Agreement in effect, following national legislative procedures (if any).
Competent Authorities must notify the Co-ordinating
Body Secretariat, promptly, of any subsequent change to be made to the
above-mentioned.
2.1 The Agreement will come into effect
between two Competent Authorities on the later of the following dates: (i) the
date on which the second of the two Competent Authorities has provided
notification to the Co-ordinating Body Secretariat under paragraph 1, including
listing the other Competent Authority’s Jurisdiction pursuant to
subparagraph 1(f), and, if applicable, (ii) the date on which the Convention
has entered into force and is in effect for both Jurisdictions.
2.2 The Co-ordinating Body Secretariat
will maintain a list that will be published on the OECD website of the
Competent Authorities that have signed the Agreement and between which
Competent Authorities this is an Agreement in effect.
2.3 The Co-ordinating Body Secretariat will
publish on the OECD website the information provided by Competent Authorities
pursuant to subparagraphs 1(a) and (b). The information provided pursuant to
subparagraphs 1(c) through (f) will be made available to other signatories upon
request in writing to the Co-ordinating Body Secretariat.”
45 A particularly
important aspect of the above procedure is the requirement that confidentiality
and data safeguards standards have to be shown to be met before any information
is exchanged. The Global Forum has initiated a process whereby individual
jurisdictions will be independently assessed for their compliance with these
standards.
46 The CRS regulations
will provide for financial institutions to undertake customer due diligence for
all participating jurisdictions (i.e. all jurisdictions committed to the CRS).
However, with which jurisdictions information will be exchanged in 2017 and
thereafter will depend on there being a legal basis for such an exchange (i.e.
the MCAA or a TIEA/DTA) and the required confidentiality and data standards
being in place.
Disclosure facility (DF)
47 The imminent
implementation of AEOI is pushing up voluntary disclosures by tax evaders which
have already yielded €37 billion of additional revenue in around 25 OECD
and G20 countries that have put in place these initiatives. The UK introduced a
disclosure facility in 2013 in tandem with the signing of the UK IGA on AEOI.
UK residents with financial accounts in the Crown Dependencies were encouraged
to disclose their affairs with the promise of a lower penalty than would be
faced if tax evasion were subsequently to be discovered by HMRC. The UK
Government announced that by the end of 2015 they expected to receive some
£250 million in tax from those with accounts in the Crown Dependencies.
However, by the end of March 2015, less than £10 million had been
realised.
48 In March 2015, the UK
Chancellor announced that the existing DF would be withdrawn at the end of the
year when it would be replaced by a more general DF applying to all relevant
jurisdictions. This new DF will continue until September 2017 when AEOI reports
under the CRS will be first made. The general DF will have a higher penalty
provision than the existing DF but still less than would be the case if evasion
were to be discovered by HMRC on the receipt of information under the CRS AEOI.
Under the UK IGA, AEOI reports will be made in September 2016 and so the risks
arising from non-disclosure will be faced earlier.
49 For the initial DF, the
Government of Jersey agreed to oblige financial intermediaries to notify their
customers of the existence of the facility, and to remind them of it within six
months of the closure of the facility in September 2016. With the ending of the
initial DF, the Regulations will fall away and it will be left to the financial
intermediaries to notify customers as they see fit.
Base erosion
and profit shifting (BEPS)
50 In February 2013 the
OECD published a report entitled Addressing
Base Erosion and Profit Shifting.[21] OECD
Secretary-General Angel Gurría said—
“These strategies, though technically legal, erode
the tax base of many countries and threaten the stability of the international
tax system . . . As governments and their citizens are struggling to
make ends meet, it is critical that all tax payers—private and corporate—pay
their fair amount of taxes and trust the international tax system is
transparent. This report is an important step towards ensuring that global tax rules
are equitable, and responds to the call that the G-20 has made for the OECD to
help provide solutions to the global economic crisis.”
51 In September 2014, the
OECD presented the first deliverables of the Base Erosion and Profit Shifting
Project to G20 finance ministers.[22]
These first results, delivered by the 44 countries, including all G20 and OECD
members, acting on an equal footing, addressed issues such as tax treaty abuse,
hybrid mismatches that result in double non-taxation, spontaneous exchange of
tax rulings, requirements for country-by-country reporting by multinationals on
key indicators, as well as an agreed approach to the tax challenges of the
digital economy transparency.
52 OECD and G20 countries in February
2015 agreed three key elements that will enable implementation of the BEPS
Project—
(1) a mandate to launch
negotiations on a multilateral instrument to streamline implementation of tax
treaty-related BEPS measures;
(2) an implementation
package for country-by-country reporting in 2016 and a related
government-to-government exchange mechanism to start in 2017; and
(3) criteria to assess
whether preferential treatment regimes for intellectual property (patent boxes)
are harmful or not.
OECD Secretary-General Angel Gurría said—
“These are important steps forward, which demonstrate that
progress is being made toward a fairer international tax system . . .
These decisions signal the unwavering commitment of the international community
to put an end to base erosion and profit shifting, in line with the ambitious
timeline endorsed by G20 leaders.”
53 G20–OECD BEPS Action Plan[23]
sets out 15 key elements of international tax rules to be addressed by year-end
2015.
The project aims to help governments protect their tax bases and offers
increased certainty and predictability to taxpayers, while guarding against new
domestic rules that result in double taxation, unwarranted compliance burdens
or restrictions to legitimate cross-border activity.
54 The measures together are
considered to represent significant progress towards eliminating double
non-taxation and are expected to give countries the tools they need to ensure
that profits are taxed where economic activities generating the profits are
performed and where value is created. However it is recognised that this will
not be easily determined when dealing with mutual funds.
55 The implementation of the BEPS
Action Plan will require modifications to the existing network of more than
3,000 bilateral tax treaties worldwide. A planned multilateral instrument is
intended to offer countries a single tool for updating their networks of tax
treaties in a rapid and consistent manner.
56 Another key objective of the BEPS
project is to increase transparency through improved transfer pricing
documentation standards—including through the use of a country-by-country reporting template[25]
that requires multinationals to provide tax administrations with information on
revenues, profits, taxes accrued and paid, along with some activity indicators.
The new guidance presented to G20 requires country-by-country reporting by
multinationals with a turnover above €750 million in their countries of
residence, starting in 2016. Tax administrations will begin exchanging the
first country-by-country reports in 2017. Countries have emphasised the need to
protect tax information confidentiality.
57 The guidance confirms that the
primary method for sharing such reports between tax administrations is through
automatic exchange of information, pursuant to government-to-government
mechanisms such as bilateral tax treaties, the Multilateral Convention on Mutual
Administrative Assistance in Tax Matters, or
Tax Information Exchange Agreements (TIEAs). In certain exceptional cases, secondary
methods, including local filing can be used.
58 The Government of Jersey is
fully supportive of the OECD BEPS programme and is ensuring that it remains
fully informed on the progress in implementing the Actions making up that
programme. However, as Jersey has relatively few DTAs, it is not used for
profit shifting and transfer pricing in the way and to the extent experienced
by other jurisdictions. The Actions considered to have the most relevance for
Jersey are—
2014 Deliverables
Action 5: Counter Harmful Tax Practices More Effectively, Taking Into Account
Transparency and Substance
Action 13: Re-examine Transfer Pricing Documentation (with particular reference to country by
country reporting)
Action 15: Develop a Multilateral Instrument
2015 Deliverables
Action 4: Limit Base Erosion via Interest Deductions and Other
Financial Payments
Action 7: Prevent the Artificial Avoidance of PE Status
Action 11: Establish Methodologies to Collect and Analyse Data on BEPS and the Actions
to Address It
Action 12: Require Taxpayers to Disclose their Aggressive Tax Planning Arrangements
59 What legislation Jersey will be
required to enact in order to participate in the BEPS programme will become
clearer with the implementation of the Actions by the OECD Member States. Of particular interest is
Action 5 which committed the OECD Forum on Harmful Tax Practices to—
“Revamp the work on harmful tax practices
with a priority on improving transparency, including compulsory spontaneous
exchange of rulings related to preferential regimes, and on requiring
substantial activity for any preferential regime”.
Action
5 explicitly recognises the need to involve third countries to ensure a level
playing field.
60 The OECD has made it clear, however, that the work on
harmful tax practices is not intended to promote the harmonisation of income
taxes or tax structures generally within or outside the OECD, nor is it about
dictating to any country what should be the appropriate level of tax rates.
Rather it is said that the work is about reducing the distortive influence of
taxation on the location of mobile financial and service activities, thereby
encouraging an environment in which free and fair tax competition can take
place.
Beneficial ownership
61 In June 2013, in
concert with the G8, Jersey published an Action Plan to prevent the misuse of
legal persons and legal arrangements.[26] That Action Plan included a
commitment to—
“Undertake a general review of corporate
transparency, having regard for the development of international standards and
their global application, starting with the publication of a pre-consultation
paper before the end of 2013.”
62 Underlying the
consideration being given to these matters is a declared commitment on the part
of the Government of Jersey to comply with the current Financial Action Task
Force (FATF) standards.[27] Of
particular relevance are the FATF recommendations on enhancing the transparency
of legal persons and legal arrangements (Recs 24 and 25). Also to be recognised
is that Jersey’s Action Plan on improving the transparency of beneficial
ownership is but one part of a comprehensive programme of support for related
international initiatives.
63 FATF
Guidance on the implementation of the FATF Recommendations on Transparency and
Beneficial Ownership of Legal Persons (Rec 24) and Legal Arrangements (Rec 25)
was published in October 2014.[28]
The fundamental requirement of FATF Rec 24 is that countries should ensure that
there is adequate, accurate, and timely information available on the beneficial
ownership of all legal persons, and that the authorities can access this
information in a timely manner. The FATF recognises that information that
relates to beneficial ownership of corporate vehicles can be found in a number
of different places including company registries, financial institutions, designated non-financial businesses and professions (“DNFBPs”),
the legal person itself and other national authorities such as tax authorities
or stock exchange commissions. Countries may choose the mechanisms they rely on
to ensure the availability of beneficial ownership information on companies. The
focus is not on being prescriptive about what mechanisms might be used. Rather
the focus is on whether the mechanism(s) used serve the purpose of ready access
by law enforcement and tax authorities to adequate, accurate and timely
information.
64 G20
following their summit in Brisbane in November 2014 published High Level
Principles on Beneficial Ownership Transparency. G20 is
committed to leading by example by endorsing a set of core principles on the
transparency of beneficial ownership of legal persons. These principles build
on existing international instruments and standards, and allow sufficient
flexibility for different constitutional and legal frameworks. These principles
are as follows—
(1) Countries should have a definition
of “beneficial owner” that captures the natural person(s) who
ultimately owns or controls the legal person or legal arrangement.
(2) Countries should assess the
existing and emerging risks associated with different types of legal persons
and arrangements, which should be addressed from a domestic and international
perspective.
(a) Appropriate information on the
results of the risk assessments should be shared with competent authorities,
financial institutions, DNFBPs and, as appropriate, other jurisdictions.
(b) Effective and proportionate
measures should be taken to mitigate the risks identified.
(c) Countries
should identify high-risk sectors, and enhanced due diligence could be
appropriately considered for such sectors.
(3) Countries should ensure that legal
persons maintain beneficial ownership information onshore and that information
is adequate, accurate, and current.
(4) Countries should
ensure that competent authorities (including law enforcement and prosecutorial
authorities, supervisory authorities, tax authorities and financial
intelligence units) have timely access to adequate, accurate and current
information regarding the beneficial ownership of legal persons. Countries
could implement this, for example, through central registries of beneficial
ownership of legal persons or other appropriate mechanisms.
(5) Countries should
ensure that trustees of express trusts maintain adequate, accurate and current
beneficial ownership information, including information of settlors, the
protector (if any), trustees and beneficiaries. These measures should also
apply to other legal arrangements with a structure or function similar to
express trusts.
(6) Countries should ensure that
competent authorities (including law enforcement and prosecutorial authorities,
supervisory authorities, tax authorities and financial intelligence units) have
timely access to adequate, accurate and current information regarding the
beneficial ownership of legal arrangements.
(7) Countries should require financial
institutions and DNFBPs, including trust and company service providers, to
identify and take reasonable measures, including taking into account country
risks, to verify the beneficial ownership of their customers.
(a) Countries should consider
facilitating access to beneficial ownership information by financial
institutions and DNFBPs.
(b) Countries should ensure effective
supervision of these obligations, including the establishment and enforcement
of effective, proportionate and dissuasive sanctions for non-compliance.
(8) Countries should
ensure that their national authorities cooperate effectively domestically and
internationally. Countries should also ensure that their competent authorities
participate in information exchange on beneficial ownership with international
counterparts in a timely and effective manner.
(9) Countries should
support G20 efforts to combat tax evasion by ensuring that beneficial ownership
information is accessible to their tax authorities and can be exchanged with
relevant international counterparts in a timely and effective manner.
(10) Countries should address the misuse of
legal persons and legal arrangements which may obstruct transparency, including—
(a) prohibiting the ongoing use of
bearer shares and the creation of new bearer shares, or taking other effective
measures to ensure that bearer shares and bearer share warrants are not
misused; and
(b) taking effective measures to ensure
that legal persons which allow nominee shareholders or nominee directors are
not misused.
65 G20 is committed to leading by example in implementing
these agreed principles. As a next step, each G20 country commits to take
concrete action and to share in writing steps to be taken to implement these
principles and improve the effectiveness of their legal, regulatory and institutional
frameworks with respect to beneficial ownership transparency.
66 The
EU has incorporated beneficial ownership information requirements into the 4th
AML Directive[29]
which Member States have two years to translate into domestic law. Under the
relationship the Channel Islands have with the EU there is no obligation on the
Islands to adopt the 4th AML Directive. However should they wish to adopt the
EU approach to safeguard market access it is to be noted that the Directive
does not include an obligation to have a public register of beneficial
ownership of companies. There is a central register requirement which Jersey
already meets.
67 The EU Directive
provides for access to the central register by law enforcement authorities in
the jurisdiction concerned. There is no provision for cross border access. It
is also unclear whether tax authorities have access on the grounds that data
protection laws would preclude access to information for tax purposes where
that information had been collected for AML purposes. The conditions of access
are also unclear. That is, whether direct access to a central register is
required and would be acceptable, or whether access on request with speedy
response times would be considered adequate.
68 Reference is made in
the Directive to access by those who have a legitimate interest in the
information but it is understood that the decision on who is considered to have
such an interest will be left to individual jurisdictions. Access to
information can be restricted to those who satisfy data protection rules which
is likely to limit the number of jurisdictions from which valid information
requests can be received. Access can also be denied if it is thought that the
beneficial owners thereby will be exposed to personal risk.
69 The EU Directive calls
for a central register only of companies incorporated in a Member State. If
companies administered in a Member State are incorporated in another jurisdiction
that is not meeting the requirements of the Directive and is not obliged to do
so (e.g. Delaware), the requirements
of the Directive will not apply to those companies.
70 The Directive also
refers to the position on the beneficial ownership of trusts. Member States
shall require that trustees of any express trust governed under their law
obtain and hold adequate, accurate, information on beneficial ownership
regarding the trust. This information shall include the identity of the
settlor, the trustee(s), the protector (if any), the beneficiaries or class of
beneficiaries, and any other natural person exercising effective control over
the trust, to be accessed in a timely manner to competent authorities and FIUs.
This is currently the position in Jersey, in that law enforcement and tax
authorities can obtain from Jersey based trustees information on the beneficial
ownership of trusts if a request is made in accordance with the provisions of
the relevant statutes.
71 The Directive calls for a
central register only in respect of trusts governed by a jurisdiction’s
law that generate tax consequences. First, this means any trust governed by the
law of another jurisdiction is not covered. Secondly, although it is not
stated, it is reasonable to assume that when reference is made to “tax
consequences” this is referring only to domestic tax. Indeed it would
seem impractical to do otherwise, for those holding the information could not
be expected to have knowledge of the tax consequences in every jurisdiction.
72 The Jersey finance industry has
been consulted by the Government of Jersey on the way forward and that
consultation has been completed but it is considered that, in analysing the
results, drawing conclusions and producing a report, the following matters need
to be fully addressed several of which remain outstanding—
(1) further
clarification is required of the UK Government’s proposal that in the UK
there should be established a publicly accessible central register of the
individuals who ultimately own and control UK companies—the
company’s beneficial owners or “people with significant control”.
Following the Royal Assent to the primary legislation (the Small Business,
Enterprise and Employment Act) on 26 March 2015, there is still secondary
legislation awaited which will deal with such matters as the exemptions from
full disclosure for those considered to be at risk of personal attack. It is
understood that the secondary legislation will be put out for consultation
before the Regulations are presented to Parliament and made;
(2) as
further information is forthcoming comparisons will be better able to be drawn
between the UK proposals and the approach adopted by Jersey. For example, the
UK proposal only encompasses companies incorporated in the UK. As a result,
unless there is a global approach with all countries implementing a public
register, it would be easy for criminals to form companies in another
jurisdiction (e.g. a Delaware LLC)
and administer them in the UK without any registration required. The Jersey
Central Register of beneficial ownership also only includes companies
incorporated in Jersey, but companies formed elsewhere that are administered in
the Island are covered through the licensing and regulation of the Trust and
Company Service Providers (TCSPs) from whom beneficial ownership information is
obtainable. The World Bank in its report “The Puppet Masters”
refers favourably to the Jersey Model;
(3) consideration
of the UK proposals has also awaited information on whether and to what extent
the UK Government intended to follow Jersey in exercising effective regulatory
oversight of TCSPs who incorporate and/or administer UK companies and
administer foreign companies;
(4) there
has been a need to assess the relative value of the UK proposals where there is
no statutory obligation placed on the Company to validate/verify the
information provided to it by the ultimate beneficial owners or controllers
concerned. The Company Registry is also not expected to validate/verify the
information received from the company, unlike the role performed by the Jersey
Registry. The UK Government is to rely on the public to provide the validation.
There are real doubts that this will be seen as meeting the FATF Recommendation
requirement of adequate, accurate and timely information for law enforcement
authorities;
(5) the impact of the
global adoption of the new common reporting standard for AEOI which will
provide for quality information on beneficial ownership to be made available
automatically between jurisdictions that sign up to the Multilateral Convention
on Mutual Administrative Assistance in Tax Matters and the Multilateral
Competent Authority Agreement, which information would then give those
jurisdictions a basis for asking for further information on request;
(6) further
consideration of the ongoing work of the OECD on what will best suit the
information needs of developing countries;
(7) the need to have
regard for how the relevant articles on beneficial ownership in the EU 4th AML
Directive are to be interpreted by the Member States, and what would be
required for equivalence to be satisfied;
(8) the need to have
regard for the steps to be taken by G20 reflected in the High Level Principles
on Beneficial Ownership Transparency adopted in November 2014 on which G20
countries have stated they will lead by example;
73 In addressing these
matters comfort has been taken from the fact that, as matters currently stand,
Jersey’s current central register of beneficial ownership information
(collected at the time of company incorporation and subject to independent
validation by the Registry), supported by the regulation and supervision of
trust and company service providers (TCSPs), puts Jersey ahead of most if not
all other jurisdictions (and independently recognised as such) in meeting what
is seen by the international standard setters as the prime objective. That is,
being in a position to provide law enforcement and tax authorities, when
requested to do so, with the accurate, adequate and up-to-date information
required for the successful fight against tax evasion, money laundering and
corruption.
European
Union (EU)
74 Cooperation with the EU on tax
initiatives goes back to 2003 when the Islands voluntarily committed to the
EU’s Code of Conduct on Business Taxation. The Guernsey and Jersey
corporate tax regimes have both been assessed by the Code peer review process
(most recently in Jersey in 2011, and in Guernsey in 2012). The rollback
measures to remove the harmful elements identified by the Group were speedily
implemented to ensure continuing compliance with the Code. In this regard it is
worth noting that the EU Commission includes in the definition of good tax
governance by third countries in tax matters, as set out in its Recommendation
of 6 December 2012 to Member States,[30] the
international standards set by the Global Forum and compliance with the
principles of the EU’s Code of Conduct, both of which the Channel Islands
satisfy.
75 The Code is essentially a
political commitment by Member States to work together to eliminate harmful tax
competition in the Single Market. Since it was established in 1997, around 400
tax regimes have been examined under the Code and over 100 harmful tax regimes
have been abolished.
76 However, in recent years, the Code has been
considered by some to have become less effective in tackling harmful tax
regimes. This is partly because the criteria in the Code are no longer adequate
to assess certain modern and complex tax regimes, and partly because the Code
of Conduct Group lacks a strong enough mandate to act decisively against such
regimes.
77 The Commission announced in March 2015
that it is to work with Member States to see how the Code of Conduct can be
improved and the Group made more effective. In a draft report the EP TAXE
Committee[31]
has called for the Code Group to be strengthened and for the criteria set in
the Code to be updated and broadened, in order to cover new forms of harmful
tax practices, including in third countries.
78 Guernsey and Jersey also
voluntarily entered into automatic information exchange and bilateral
withholding tax arrangements respectively with all 28 Member States under the
EU Savings Directive (EUSD). The withholding or retention tax arrangements
applied from July 2005. Guernsey has applied mandatory automatic information
exchange under the EUSD since 1 July 2011 and Jersey since 1 January 2015.
79 The revised Savings Tax Directive,
adopted in March 2014, widened the scope of information that Member States
would automatically exchange on savings income. While this was an important
transparency measure, its scope was limited to savings-related income. In
December 2014, Member States adopted a revision of the Administrative
Cooperation Directive, which was much wider in scope than the Savings
Directive. The revised Administrative Cooperation Directive would ensure that
Member States automatically exchange the full spectrum of financial
information from 2017. It reflects, in EU law, the new OECD/G20 global standard
for the automatic exchange of information.
80 Provisions previously contained in the EU
Savings Tax Directive are now entirely covered by the more ambitious
Administrative Cooperation Directive. Therefore, in order to avoid duplication
and overlapping EU legislation in this field, the Commission is proposing to
repeal the Savings Tax Directive. This will ensure a simpler and streamlined
legislative framework for businesses and tax administrations.
81 Under
transitional arrangements, the Savings Directive will continue to be
operational until the end of 2015 to be replaced by Council Directive
2014/107/EU as from 1 January 2016. As Austria has been allowed to start
applying Council Directive 2014/107/EU up to one year later than other Member
States, special transitional arrangements, taking account of this derogation,
will apply to Austria. Provided the proposal to repeal is adopted by the
Council, the amendment to the Savings Directive, which had been adopted by the
Council in March 2014 will not have to be transposed by Member States.
82 In March 2015, the Commission announced
a proposal that would oblige Member States to exchange information automatically
on their tax rulings. This means that tax authorities would have to share a
pre-defined set of information on all of their advance cross-border tax rulings
with all other Member States. They would do this on a quarterly basis and
following a standard format. Recipient Member States would then be allowed to
request more detailed information on a particular tax ruling if they believe
that it is relevant to their own taxation rules.
83 In an EU Fact Sheet on
combatting corporate tax avoidance issued in March 2015, it is stated—
“The proposal covers all advance cross border
tax rulings and all advance pricing arrangements which Member States issue to
companies and entities . . . Purely domestic tax rulings are exempt.”
Given the nature of the Channel
Islands tax structure, it is expected that there would be very few, if any, tax rulings
that would be covered by the EU proposal if the Islands were to volunteer to
participate.
84 Continuing their
“good neighbour policy” the Channel Islands have agreed to reflect
the repeal of the EUSD by suspending the bilateral Savings Agreements to the
same timetable and subject to the same transitional provisions. Action on this
awaits the formal adoption of the repeal of the EUSD by the EU.
85 The Islands intend to
begin the automatic exchange of information with the Member States to a 2017
timetable (other than with Austria which will be a year later) covering
financial accounts existing at the end of 2015 and new accounts opened from 1
January 2016. Subject to agreement the legal gateway for the exchange will be
the Multilateral Convention on Mutual Administrative Assistance in Tax Matters
together with the Multilateral Competent Authority Agreement.
86 Of potential concern
for the future relationship between the Channel Islands and the EU, bearing on
market access, is the wish of some to include effective rates of taxation among
the criteria for defining fair tax competition. Some indication of the
potential measures that might be taken against those territories categorised as
tax havens is to be found in the draft report of the TAXE Committee. However, it
is suggested that, if there is proper recognition of the Channel Islands’
record of compliance with the international standards of transparency and
information exchange and the principles of tax neutrality, there should be no
question of their being so categorised, given also the continued clear
recognition within the EU that the setting of tax rates is a matter of national
sovereignty.
87 Some EU Member States
include within their tax legislation a list of third country jurisdictions with
regard to whom the Member State applies predefined tax measures or tax policies
(e.g. a higher rate of withholding
tax or enhanced due diligence procedures by financial institutions). These so
called “national blacklists” are based on assorted criteria—in
some cases linked to rates of taxation and in other cases to non-cooperation
(itself defined in different ways—most commonly linked to the existence
of a TIEA or similar exchange of information instrument).
88 The Commission, in its
Recommendation to Member States of December 2012, defined good governance in
tax matters by third countries in relation to adherence to international
standards of transparency and cooperation, and the absence of harmful tax
measures as set out in the EU’s Code of Conduct. The Commission
recommended that Member States should remove jurisdictions from their national
blacklists which meet these good governance standards.
89 With the combination of
EOIR, support for AEOI as an “early adopter” of the CRS, and
general support for international tax initiatives and the EU principles of good
governance, it is considered that there are no good grounds for the Channel
Islands’ inclusion in any blacklists of non-cooperative jurisdictions.
The Islands are actively working with those Member States that still include
them on their national list to achieve de-listing. This applies also to tax based
listings where as noted in the section on EOIR above the combination of tax
neutrality, transparency and automatic information exchange is considered to
meet the requirements of fair competition.
90 On 17 June 2015, as
part of its Action Plan on corporate taxation, the European Commission
published a consolidated list of third country jurisdictions based on data
supplied by Member States on their national blacklists. The Commission chose to
include in this consolidated list those jurisdictions which appeared on 10 or
more national lists. Guernsey was included erroneously because its inclusion
depended on the blacklisting of Sark by Poland being wrongly attributed to
Guernsey. The Commission also chose to give the consolidated list the label
“non-cooperative tax jurisdictions” despite the fact that, as noted
above, in many cases these national blacklists are based on criteria other than
cooperation and despite the Commission’s own recommendation to Member
States of December 2012 about what constituted tax good governance.
91 Both Guernsey and
Jersey fully shared the widespread criticism of the Commission’s
methodology and welcomed the Commission’s subsequent relabelling of the
list to make clear that it is not a blacklist of non-cooperative jurisdictions
and that it should not be considered nor used as such.
Conclusion
92 This review of
international tax initiatives will have shown the extent to which the Channel
Islands are faced with some far reaching developments, many of which will
impose a significant burden on financial institutions. However these
developments and the costs incurred are being faced worldwide and there is no
reason why the Islands’ relative competitive position should be adversely
affected. Indeed, because of a greater need in their case to get international
recognition of compliance with international standards, in order to avoid
discriminatory action being taken against them, the Islands are in a much
stronger position in relation to the action now being called for than many
other jurisdictions. What the Islands have also found is that compliance with
the international standards is not detrimental to business development. There
is therefore no reason to expect that continued compliance with the international
initiatives to which this article has referred need adversely affect the
Islands’ continued success as international finance centres.
From 1969 to 1999 Colin Powell CBE
was Adviser to the States of Jersey on the Island’s economic
development, including as an
international finance centre. From 1981 to 2011 he held the position of
Chairman of the Group of International Finance Centre Supervisors (formerly the
Offshore Group of Banking Supervisors), and in that capacity participated in
and contributed to the work of the Financial Action Task Force and the Basel
Committee on Banking Supervision.
From
1999 to September 2009 he held the position of Chairman of the Jersey Financial
Services Commission, the body responsible for the regulation of all financial
services in Jersey. He is currently Adviser on international affairs to the
Chief Minister, and in this capacity is engaged in negotiating tax information exchange agreements.
He
represents Jersey on the Global Forum on Transparency and Exchange of
Information for Tax Purposes. From 2009 until the end of 2013 he was a
vice-chair of the Global Forum Peer Review Group. While remaining a member of
that Group he is now a vice-chair of the Global Forum’s Working Group on
Automatic Exchange of Information.