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Tax in Developing Countries: Increasing Resources for Development

Written evidence submitted by Jersey Finance

Jersey Briefing – Developing Countries

Why Jersey?

· Jersey is one of the world s leading international finance centres . Its successful combination of stability and reliability has kept Jersey at the forefront of global finance for almost half a century.

· Finance is the largest contributor to Jersey s fiscal income and accounts for over 40% of GVA, employing approximately 12,800 people in banking, wealth management and administration.

How is Jersey used?

· There has been considerable growth in the number of businesses choosing a Jersey company as a holding company to list on London s key stock exchanges.

· Jersey companies offer a tax-neutral platform for accessing equity capital markets globally and Jersey company law is based on the UK s Company Law in a wide range of transactions.

· It is used by international high net worth private clients seeking expertise in wealth management, trusts and private banking within a secure, stable and well regulated centre.

Importance of Jersey to London?

· The partnership between the City of London and Jersey is very strong. We are frequently part of the same transaction chain , facilitating the deployment of mobile international capital, so vital to the operation of free markets and to the global financial system.

· There is a partnership approach between Jersey and the City of London and Jersey is a ‘jurisdiction of choice for listing holding companies on the Main Market of the London Stock Exchange.

How was Jersey assessed by the Independent Review of British Offshore Financial Centres?

· The Foot Review commissioned by the former Chancellor of the Exchequer in 2008 found that Jersey was performing extremely well in all areas it covered. It specifically highlighted the value that Jersey had provided to the UK throughout the banking crisis, as the largest provider of net deposits, in the region of $218.3 billion , to UK banks in the second quarter of 2009 alone.

· The report also concluded that the amount of UK tax avoided by UK corporates using British Offshore Financial Centres was "significantly lower than estimates produced by previous studies have suggested".

How was Jersey reviewed by the International Monetary Fund?

· In its 2009 review, the IMF gave Jersey s finance industry a ringing endorsement for the quality of its regulation and legislation, the transparency of its regulatory processes and the robustness and resilience of its banking system , praising its high standards of regulation and supervision.

· The Financial System Stability Assessment Update (FSSA), states that Jersey is in the ‘top division of international finance centres , including those in the G20 and EU.

· The Jersey Financial Services Commission is also described as conducting its functions in ‘a transparent and accountable manner whilst anti-money laundering rules and measures to counter terrorist financing are described as ‘comprehensive and ‘robust .

How is Jersey rated by the Global Financial Centres Index?

· Jersey maintained its rating as the top offshore international finance centre, which it has now held for five consecutive Indexes in the September 2011 Global Financial Centres Index (GFCI), published biannually by the City of London, and is now categorised as a ‘global specialist centre .

How does the OECD regard Jersey?

· Following the G20 summit in 2009, Jersey has been placed on the ‘white list of jurisdictions ‘that have substantially implemented internationally agreed tax standards . Jersey entered into a political commitment to reflect the OECD s principles in February 2002, and to date has signed 24 TIEAs, including UK, USA, France, Germany, China and Canada.

· Jersey has been invited to take on the role of Vice Chair for a new Peer Review Group (PRG). The OECD Global Forum elected France (Francois d Aubert) to Chair the Peer Review Group, with India, Japan, Singapore and Jersey as Vice Chairs.

Does Jersey invite money laundering, tax abuse, corruption and secrecy?

· A strong compliance culture, not secrecy, is the force behind the growth of Jersey as an international finance centre, with robust regulation and international cooperation that has contributed to its development.

· Jersey is among one of the highest rated jurisdictions globally for complying with international standards on anti-money laundering and anti-terrorist financing.

Does Jersey help to facilitate tax avoidance and evasion, causing poverty to developing countries?

· Tax evasion is illegal in Jersey and has been a criminal offence since 1999.

· People and companies do not use centres such as Jersey to avoid tax , they use them because they have international interests, for example:

a) Money is earned, and taxed, in Country A

b) Money is then sent to Jersey, where it is deposited, or structured for onward investment. The offshore centres charge for these services, and the profit made on these services are taxed by the Government there

c) Money is then invested in Country B, where the earnings are taxed.

· Jersey provides a commercial vehicle to bring together investors from around the world to participate in multinational business transactions.

· Major academic studies by a number of highly respected institutions have been completed to evidence empirically that IFCs are an economic accelerator , and not only do they not detract from major economies they provide a net benefit. A recent study by Professor Jason Sharman found that IFCs can enhance economic growth and alleviate poverty among developing countries, by boosting domestic and foreign investment. Sharman also finds that there is insufficient evidence to support the two common misconceptions surrounding IFCs; that they drain wealth from developing countries or that they are used for tax avoidance. In fact, the report finds that small IFCs are crucial intermediaries for trade with and investment into developing countries.

· A report conducted by Richard Teather in 2010, concluded that, far from killing 1,000 babies a day as a recent Christian Aid study alleged, global trade actually saves the lives of up to 5,000 children every day . The report "Transfer mispricing and child mortality", deduced that the data in the studies is flawed, and far from being a major source of child death, the type of multi-national transactions criticised in these reports are potentially a major factor in reducing child mortality, lifting half a billion families out of poverty.

· In this current period when the global financial architecture is under review it is important that any prospective changes are fully understood. There is a distinct danger that if IFCs are discriminated against or marginalised this could not only damage the flow of capital around the world, but significantly hamper the economic progress of developing nations.

February 2012

References and further reading

· International monetary fund

IMF s recent review gave Jersey a ringing endorsement for the quality and high standards of its regulation and legislation

http://www.imf.org/external/pubs/ft/scr/2009/cr09282.pdf

· Global Financial Centres Index

Jersey has been rated as the top offshore international finance centre

http://www.zyen.com/GFCI/GFCI%209.pdf

· OECD

Jersey has been placed on the OECD ‘white list

www.oecd.org

· Independent review of British offshore financial centres – Michael Foot

Crown Dependencies make a significant contribution to the liquidity of the UK market, and highlight the value that Jersey had provided to the UK throughout the banking crisis, as the largest provider of net deposits.

http://www.hm-treasury.gov.uk/indreview_brit_offshore_fin_centres.htm

Understanding corporate usage of British Crown Dependencies and Overseas Territories (Part of review of British offshore financial centres) – Deloitte

UK tax avoided by UK corporates using the nine jurisdictions is likely to be significantly lower than estimates produced by previous studies have suggested

· STEP report 2009 – International Finance Centres and the World Economy, James Hines

Offshore financial centres play a key role in the international finance system and the world economy

http://www.step.org/attach.pl/2736/6041/InternationalFinanceCentresThe%20Hines%20Report.pdf

· International Financial Centres and Developing Countries: Providing Institutions – Professor Jason Sharman

IFCs can enhance economic growth and alleviate poverty among developing countries, by boosting economic and foreign investment

www.ifcforum.org/files/Sharman___International_Financial_Centres_and_Developing_Countries.pdf

· Transfer Mispricing and Child Mortality – Richard Teather

Globe trade actually saves the lives of up to 5,000 children everyday

http://www.jerseyfinance.je/News/Free-Trade-Saves-5000-Children-Every-Day

· Tax Evasion, Tax Avoidance and Tax Expenditures in Developing Countries – Oxford University Centre for Business Taxation, Clemens Fuest and Nadine Riedel

These reports undertaken in 2009 and 2010 provide a survey of existing studies on tax avoidance and tax evasion as well as tax expenditures in developing countries

2009 – A Review of the Literature

http://www.dfid.gov.uk/r4d/SearchResearchDatabase.asp?OutPutId=181295

2010 – The Role of International Profit Shifting

http://ideas.repec.org/p/btx/wpaper/1012.html

Prepared 22nd February 2012