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FINANCE specialists are warning that new European Union rules on taxation will cost the Island dear - even though Jersey is not part of the UK or the EU. Up to 30 extra staff at the Income Tax Department alone may be needed to exchange information with tax departments in EU countries to comply with the new tax directive which was agreed last month. All financial services firms, including banks, lawyers, stockbrokers and trustees, will be required to put new systems in place to obtain more detailed information about their clients than ever before. The ultimate test for Islanders will be the EU code of conduct, requiring Jersey to reduce its corporate tax to zero and completely reform its tax system, with a greater burden for the ordinary taxpayer. The true cost of the EU demands was spelt out this week at a seminar organised by accountancy firm KPMG. Speaker John Harris (pictured), adviser to the Policy and Resources Committee, said that discussions with the UK government were currently focused on getting the EU to agree to give the Channel Islands more time to comply with the code of conduct. Mr Harris explained that the code was crucial for Jersey because it would involve changes to the 'exempt company' scheme, which was an 'essential tool' for attracting banking and private client business. The EU has set a deadline of 1 January 2004 to comply with the code, but extensions were granted last month to Belgium, Ireland, Luxembourg, the Netherlands and Portugal. Mr Harris revealed yesterday that during the talks in Brussels the UK had not been as prepared for the negotiations as the other EU members and their request on behalf of the Channel Islands had been deferred until the next Ecofin meeting on 7 March. Mr Harris said that he had been 'quite astonished' at how little the UK government understood about the economy of Jersey and that a considerable amount of time had been spent explaining why it would be difficult to comply with the EU demands. 'We must go through the UK to talk to Europe, which is something of a disadvantage if there are diverging interests,' he said. 'We are talking to the UK so that this time we hope to get the result we need. All eyes are on 7 March. I think that we have good prospects. 'If we get what we want - which means we can plan the changes over a five- or ten-year period - then we shall be coming back to talk about the savings tax directive. We want recognition of our rights.' He confirmed that following last month's meeting the Island had a choice, in theory, between exchanging information on interest paid to individuals or withholding tax payable in EU countries. In practice, though, the United Kingdom was strongly in favour of exchanging information. 'We are at the stage of diplomatic speak now,' he said. Asked whether Jersey, Guernsey and the Isle of Man would work together, Mr Harris said that it was his personal opinion that they would end up in the same place. 'For me the crucial point is not whether Guernsey goes down the withholding tax route or Jersey has exchange of information. 'People are saying that business would move from one island to the other, but what would happen is that the business would move to Hong Kong and Singapore instead. 'What we need to do is keep trying to make sure that the same process takes place in the Far East. At the moment the level playing field is highly selective.' (17 Feb 2003 Independent)
The American administration has called into question moves initiated by European governments within the Organisation for Economic Co-operation and Development (OECD) against so-called tax havens. The subject is likely to cause friction at the OECD summit in Paris being held on 16th and 17th May. The new administration has made it clear that it will not support moves against territories which offer fiscal advantages to savers. In June 2000, a majority of OECD members (i.e. the principal European states) drew up a list of 35 countries whose tax policies they considered "disloyal". They even envisaged imposing sanctions on countries which failed to fall in line with international norms on tax. Last week, Paul O’Neill, the US Treasury Secretary, warned the OECD against taking any steps which would infringe the sovereignty of states in its battle against money laundering. O’Neill said he shared a number of the serious concerns which have been voiced about the direction taken by the OECD under this initiative. "I am worried by the implicit notion that a low tax rate is by definition suspect and by the notion that any country or group of countries would interfere in the decision a country takes about how to organise its own tax system in the way it sees fit." The Europeans – including Le Monde’s own correspondent – have been doing everything to blur the distinction between tax competition and tax evasion or money laundering. (European Foundation Digest 17/5/01)
The various "tax havens" throughout Europe, Isle of Man included, will cease to function as such possibly within five years, definitely within 10 years. That is an issue not open to debate and one over which the Manx Government and Manx people have no say whatsoever. The people should be informed of that fact. Despite government hints that "agreements will be reached", the cold, hard fact is that the financial sector will for the most part move on from the Isle of Man within that time. What will follow will be a period of recession unseen in the history of the Island . When the merry-go-round comes to an abrupt halt in a few years, a great many people will be paying huge mortgages on homes that will see a depreciation of perhaps 50-80 percent. I think it is cruel that people are being dragged along with the present inflation in the Isle of Man for, unlike London, the Island has little left once the finance goes. One north African country has already made very comprehensive plans to assert itself as the new near Europe centre for finance, which turns the wheel full circle from the post-war years. (Prof St John Gregg, Isle of Man Examiner - 4 September)
The Channel Island of Jersey may hold a referendum next year on independence amid fears that the government will accept European Union demands to end its low-tax status, the Independent reported on Monday. The island would end 900 years of association with the crown if enough of its 90,000 residents backed the radical proposal to break away, the newspaper said. Many islanders had been angered by European Union pressure to dismantle low tax regimes that had made Jersey and another Channel Island, Guernsey, among the richest financial centres in Europe, the newspaper said. With 80 percent of Jersey's income and most of its jobs derived from the financial industry, senators were determined to campaign hard against the EU demands, the Independent said. Le Claire was quoted as saying the government had so far failed to offer reassurances that it would not dismantle the island's tax regime. "The government has so far not shown any real willingness to stand up for Jersey. If it continues to ignore our concerns, then independence has got to be considered," he said. (Reuters 28/8/00)
The results are now public of the first ever poll on Jersey - should the island go independent? - conducted by Channel TV of 700 people. 68 per cent said yes to independence. (Eurofaq posting L Jenkins 12/7/00)
(Jersey) Senator Paul Le Claire is to table a proposition in the Jersey States calling for a referendum on Jersey's independence from the United Kingdom. Senator Le Claire said today: 'The public has the right to a future free from dictatorship by Brussels. For a thousand years the people of this island have had a benign relationship with the UK and its predecessors. A week ago the British Chancellor of the Exchequer, Gordon Brown, and his so-called partners in the European Union, agreed at the EU Summit in Portugal to offer up their countries and their dependent territories as sacrificial lambs for the greater glory of the new European super state. 'If the source of over 80 per cent of our income is killed off by the European Union and its ugly sister the OECD, then the people of Jersey should be allowed to speak and determine their own future.' At the summit at Santa Maria Feira, Portugal all the EU Member States agreed to end banking secrecy as an alternative to a withholding tax. Either option will put paid to Jersey's main source of income. 'We in Jersey have no faith in the UK government to safeguard our long held rights to govern ourselves and set our own taxes. We the elected politicians have a duty to seek the opinion of the people on our future. (Press release by Senator Paul Le Claire 1/7/00)
After the cave in by Brown et al in Portugal a week ago the future of Jersey hangs on Swiss ability to withstand the EU attack on banking secrecy. The Swiss Finance Minister says the Swiss will not give in. The Germans say they have ways of making them give in. If the reporting requirement on the withholding tax comes in there is not a scrap of difference between paying the tax and reporting the income. The answer is still that funds will find a better home outside the EU. The British Govt has undertaken, within the present constitutional arrangements, to get all British dependencies to accept the recommendations of the Code of Conduct group including the reporting requirement. 80 per cent of Jersey's income is finance related. (Eurofaq posting L Jenkins, 2/7/00)
Yesterday on Guernsey leading local lawyers, politicians and businessmen attended a conference to discuss ways of resisting the growing threats from the EU and the OECD to their right to set their own taxes: even a move to complete "self-government". The Channel Islands, of course, depend heavily on financial business attracted by low-tax regimes. This not only accounts for some 60 per cent of their income but, with Jersey alone contributing up to 200 billion pounds a year to the City of London, makes them the City's second biggest source of overseas funds after Switzerland. Islanders were therefore horrified by last week's final report of the EU's Code of Conduct group on "unfair tax competition", which urges that tax-breaks operated by their islands be "modified or dismantled by January 2003"; not least since the group's chairman is the UK Treasury minister, Dawn Primarolo. The Channel Islands are not part of the European Union. After 1000 years, they may soon not be dependencies of the British Crown either. (Sunday Telegraph 12/3/00)
The Government faces a tough warning today that its stand against a Europe-wide tax on savings may jeopardise Britain's prospects of joining the European single currency. Mounting anger at the Government's stance in blocking the "withholding tax" is expected to boil over today when the Chancellor, Gordon Brown, confronts his colleagues at a crucial meeting in Brussels. In the clearest sign yet that other countries are raising the stakes. Italy has warned that Mr Brown's obstinacy could hamper the pound's chances of joining the euro after the next election. The Finnish presidency of the EU argues that the UK is isolated and that its position will scupper a wider package designed to eliminate around 60 unfair tax breaks across the EU and the removal of taxes on cross-border interest and royalty payments. Some are talking privately about making acceptance of the tax package a pre-condition of UK entry into the euro. Another danger is that the Commission may try to launch legal action against UK tax havens such as the Channel Islands on the basis that they are benefiting from illegal breaks. (Independent 29 November 1999)
Senior politicians in the Channel Islands have the first time been prepared to speak openly about the possibility of the Islands having to declare independence from the British Crown. This is in response to growing pressure from the EU for the UK government to impose tax rules which threatened to devastate the Islands' economies by wiping out the financial services industry on which they depend for two-thirds of their income. None of the Islands are part of the EU and technically, as Crown dependencies, enjoy formal sovereignty over their tax affairs. But as the EU moves towards stamping out "unfair tax competition" gathered pace, the UK government has been under increasing pressure to force them into line. What islanders particular fear is that Britain is looking for a way to appease the EU for its resistance to the EU's proposed withholding tax. The most obvious sop for the UK to offer to Europe in return its opposition to this tax is one that is being discussed in secret for over a year by an EU working party chaired by the Treasury Minister Dawn Primarolo. Among 60 tax measures targeted by her committee for removal, 22 apply to the Channel Islands and the Isle of Man. (Sunday Telegraph 14/11 and/99)
For the 20% withholding tax on savings to be effective there would have to be binding commitments to make it applicable in the dependent territories (such as UK Channel Islands) and neighbouring countries of the EU. The 20% withholding tax would lead to a flight of capital from the EU, said the Luxembourg budget minister. Ireland said third country consultations were especially important to avoid a flight of capital. (Financial Times 4 May 1999)
Three of the UK's tax havens have hit out at government pressure on them to reform, reflecting growing fears breaches official crackdown is imminent. The government's action has been seen as part of a multi-pronged assault against offshore financial centres. Separate initiatives have been launched by the European Union, the Organisation for Economic Co-operation and Development and the Financial Stability Forum, a grouping of finance ministries, central banks and regulators. Jersey reacted angrily to news that the Treasury plans to work with the Foreign Office and Home Office to press the UK's dependent territories to stop offering tax breaks to foreign companies and individuals. The Director of Investment Business at the Guernsey's Financial Services Commission criticised the use of the phrase "tax haven" in a press release issued by the Inland Revenue. "We do not consider ourselves a tax haven," he said. "It doesn't help when the UK government which is meant to be defending our interests comes up the press release like this." Gibraltar, another offshore centre with a designer tax regime, said the Treasury had "politicised" the debate on offshore financial centres. (FT 9/10/99)
The Government took another step yesterday in its action against tax havens, closing a loophole that was costing the Exchequer up to £100 million a year in corporate taxes. The move is aimed a stopping designer taxation, whereby havens tailor rates to help individual companies to avoid UK tax. New regulations come after a European Union ministerial committee on tax co-ordination, chaired by Dawn Primarolo, junior Treasury minister, recommended action against tax havens. "The crackdown we have announced today is just the first step," said they Treasury official. The Inland Revenue said the measure was aimed at designer tax regimes in Guernsey, Jersey, the Isle of Man, Gibraltar and Ireland. The government is concerned it might be seen as caving in to pressure from Brussels. (FT 7/10/99)
Fritz Bolkestein, the internal market commissioner, said, "I do not think it possible to carry out the withholding tax of savings proposal if we do not have at least Jersey, Guernsey, Switzerland, Litchenstein and Monaco on board." (FT 8/12/99)
IN the past two days senior politicians in the Channel Islands have for the first time been prepared to speak openly about the possibility of their islands having to declare independence from the British Grown. This is in response to growing pressure from the EU for the UK Government to impose tax rules which threaten to devastate the islands' economies by wiping out the financial services industries on which they depend for two thirds of their income,. The admission that the islands might, after 900 years, have to consider independence followed what was originally meant to be a secret meeting at the Home Office on Thursday, when senior representatives of the islands and the Isle of Man flew to London to plead for support against the threat to end their status as "tax havens". None of the islands are part of the EU and technically, as Crown dependencies, enjoy full sovereignty over their tax affairs. But as the EU moves towards stamping out "unfair tax competition" gather pace, the UK Government has been under increasing pressure to force into line. What islanders particularly fear is that Britain is looking for a way to appease the EU for its resistance to the EU's proposed "withholding tax".( C.Booker Sunday Telegraph London 14/11/99)
May we see the Channel Islands and the Isle of Man declaring their independence from Britain after 1,000 years? The prime cause for concern has in the secret deliberations of the EU committee chaired by UK Treasury Minister Dawn Primarolo on harmful tax competition, identifying nearly 200 local tax measures across Europe which the EU may demand should be scrapped. This targeted 11 tax exemptions in the Isle of Man, 7 in Guernsey, and 4 in Jersey. The abolition would strike devastating blow at the economies of the islands, which are so heavily dependent on the banks and financial services attracted by these low tax regimes that these account for 40% of the Manx economy and 60% of Jersey's (plus 75% of its tax revenue). The odd thing is that none of these islands are in the EU. But this does not prevent Brussels from trying to persuade the UK to put pressure on them to accept its right to interfere. EU finance ministers revealed that member states are now committed to ensuring that any taxation of savings directive, or withholding tax, would equally apply to the dependent or associated territories. This in itself would have a devastating impact on the islands. Banks would leave in droves. (Sunday Telegraph 20 June 1999)
Channel Islands face catastrophe. The proposed directive on the taxation of savings urges member states to apply the directive to their dependent territories, including the Channel Islands and the Isle of Man. (Guernsey evening press 811 February 1999) (FFP28)
On February 12th 1999 the European Parliament passed as a single market measure requiring only a Qualified Majority, an amendment to the 1976 Directive on Mutual Assistance for recovering tax. The amendment deals with the collection of EC funds which have been expended on Common Agricultural Policy guarantee payments, customs duties, VAT and some excise duties. It introduces four new principles into the laws of the member states: EC claims to have superior ranking to member state claims in the event of the bankruptcy of the debtor (Amendment 7); EC claims to be preferred over member state claims where there is competition for the funds from a debtor (Amendment 7); identical treatment of EC claims in member state law, as if they were the member state's own claims (Amendments 3 and 7); direct enforcement of EC legal instruments specifying claims in all member states' law (Amendment 6). The amended Directive is aimed at "fraud and tax evasion" and covers "both national claims and claims payable to the Community budget" (Amendment 2). Its rapporteur, Otto Bardong, states that under the amended Directive "no recalcitrant taxpayer should be able to find shelter in a 'tax haven' which protects him from pursuit" [Explanatory Statement B 2.5]. 'Taxpayer', explains Bardong, now includes the payer of any and all taxes, whether indirect or direct. "The Commission ........ proposes to widen the scope of the Directive to cover direct taxes" thus bringing it into line with the 1977 Directive on mutual assistance between the member states in the field of direct taxes. Bardong heartily approves of this extension: "Quite obviously, Member States must co-operate fully in combating all forms of tax evasion and tax fraud, and it would be unacceptable for havens allowing tax evasion to continue to exist within the single market (Amendment 5)." The Channel Islands and Isle of Man will find it extremely hard to maintain their present tax structures for non-residents, and with the advent of withholding tax on interest paid across member state borders, either at 20% or 15%, there will certainly be a flight of capital deposits from the Islands to jurisdictions outside the reach of Messrs. Santer and Co. In addition, the UK Inland Revenue will become merely a tax-collecting agent for France and Germany, where high tax rates have forced their nationals to deposit funds in the UK. The amended 1976 Directive and Corpus Juris have common purposes. Tax defaulters - very widely defined - are undoubtedly their shared targets. Their methods of dealing with those whom they define as criminals are also remarkably similar. In effect the EPP [European Public Prosecutor] is given the power to take over all fiscal prosecutions from the member states' prosecuting authorities where there is an EU or Commission interest in the outcome. Since the amended Directive makes evasion of tax (conflated in Belgium and France, and now in Gordon Brown's Britain, with tax avoidance) an EU competency, tax compliance thereby becomes an EU-regulated activity. (Eurofaq posting C J Arkell 23 Feb 1999)
Part of the reason for the rapid growth of tax havens is that ordinary people are sheltering their assets from punitive tax laws. This unprecedented growth comes at a time when the EC has never been more determined to shut them down. It believes they constitute harmful competition. Britain benefits from the Channel Isles and the Isle of Man because they feed ever-increasing sums back to the mainland. (European 21/9/98)
The EC says tax havens such as the Channel Islands are an obstacle to the European single market and ripe for abolition. The closure of tax havens in Luxembourg or Monaco will simply lead to the creation of more in the Cayman Islands. It would be a strange service to Europe's economy to drive such financial services off the European continent. Actually the UK is the biggest and best offshore investment opportunity of all. EU officials watch in dismay as Britain's low social costs attract investment from the Continent. They believe that such tax differences must be eradicated if the single market is to be perfect. (European 27/4/98)