Investment
Taxation
Jersey’s take on tax information exchange
The States of Jersey, the island’s government, gives its view on the exchange of information on tax matters.
The OECD Harmful Tax Initiative began life in 1998. It was originally conceived as an attempt by the OECD countries to coerce fiscal reform in a number of named offshore jurisdictions and has since undergone significant changes.
This is partly due to its asymmetric nature – demanding reform of small jurisdictions without ensuring that the same standards were adopted by all of its own member nations (notably Switzerland and Luxembourg who have consistently abstained from the initiative since its inception).
Second, its original core of seeking to end what the OECD saw as harmful tax regimes in small non-OECD economies has given way to a drive to foster generalised exchange of information on request in both criminal and civil tax matters between the named jurisdictions and OECD member countries.
Jersey already exchanges information in criminal tax matters with other countries as a consequence of a suite of local legislation enabling this – implemented through mechanisms of judicial co-operation. The OECD model envisages this being done in the future via administrative exchange of information between the competent (tax) authorities of treaty partners in both criminal and civil tax matters. Jersey has no difficulties with these principles providing that the standards are adopted universally by all countries active in international financial services business.
The named jurisdictions have made political commitments to these principles of information exchange and transparency. In the case of Jersey this was done in February 2002 but in keeping with the commitments made by all of the jurisdictions concerned the Jersey commitment was given on a ‘level playing field’ basis, that is to say subject to the principles and mechanisms being adopted universally including by non-participating OECD member countries as well as by other significant financial centres which were not named in 1998 and which have hitherto remained outside the process.
The following pages give more detail on the development of this initiative as well as examining in detail the current position in respect of the level playing field requirement. The term now used for any country or territory participating in the project is participating partner.
Jersey – a participating partner
Jersey’s involvement in the OECD Project on Harmful Tax Initiatives is voluntary and takes the form of a participating partner in the project. An explanation of the relationship between participating partners and the OECD as a supra-national organisation, taken from the OECD’s own website at http://www.oecd.org/ is as follows:
Work of participating partners
The 33 committed jurisdictions and OECD countries (collectively referred to as Participating Partners) work together under the auspices of the OECD’s Global Forum on Taxation to develop the international standards for transparency and effective exchange of information in tax matters.
Through their work on transparency, the participating partners seek to ensure that the information needed by tax authorities to determine a taxpayer’s correct tax liability is available (that there are reliable books and records available). This work is carried out through the Joint Ad Hoc Group on Accounts.
With regard to exchange of information in tax matters, the OECD encourages countries to adopt information exchange on an upon request basis. Exchange of information upon request describes a situation where a competent authority of one country asks the competent authority of another country for specific information, generally under the authority of a bilateral exchange arrangement between the two countries.
An essential element of exchange of information is the implementation of appropriate safeguards to ensure adequate protection of taxpayers’ rights and the confidentiality of their tax affairs. In the area of exchange of information, the Participating Partners worked together to develop a Model Agreement on Information Exchange on Tax Matters that countries can use to guide their bilateral negotiations.
The participating partners are also working towards establishing a global level playing field in the areas of transparency and effective exchange of information in tax matters. Toward this end, they met in Ottawa, Canada in October 2003 (see Closing Statement by Co-Chairs) and established a Sub-Group on Level Playing Field Issues to develop proposals for consideration by the full Global Forum.
The Sub- Group developed a set of proposals and these proposals were endorsed at a Global Forum meeting in Berlin, Germany in June 2004. At this meeting representatives of 42 governments, both OECD and non-OECD approved a joint report on how to achieve their common objective of a global level playing field based on high standards of transparency and effective exchange of information.
The report contemplates actions of an individual, bilateral and a collective nature. Regarding the collective aspects of the process the Global Forum agreed to carry out a review of the transparency and information exchange practices currently applied by all OECD countries, the 33 non-OECD participating partners as well as other significant financial centres. The Global Forum also invited other financial centres to participate in its work
Links to the Berlin Global Forum output can be found on this page.
The level playing field
The most critical factor in the application of the OECD tax initiative from a Jersey perspective is the ‘level playing field' issue. The island, in common with most of the jurisdictions identified by the OECD in its initiative, entered into a political commitment to engage in exchange of information on request in respect of civil and criminal tax matters with effect from January 1, 2006.
This it was agreed would be exercised through the negotiation of tax information exchange agreements. An agreement was entered into with the US in 2002, and negotiations are underway with a number of other OECD member countries – Australia, New Zealand, France, Germany, Ireland, Italy, Netherlands, Spain and the United Kingdom. Jersey has now signed 13 such agreements and is planning to deliver more.
However, the OECD has not been able to deliver the level playing field which was a condition attached to the political commitment.
The island has indicated in its negotiations with the OECD member countries that while it is committed to the principle of exchange of information on request it cannot be expected to translate that commitment into effect if there would be a significant economic cost through a loss of competitiveness. The island has made it clear that it cannot be expected to go ahead of its major competitors – Luxembourg, Switzerland, Hong Kong China and Singapore – none of whom have yet agreed to join Jersey and others as participating partners.
The OECD member states together with the participating partners are currently enjoined in seeking to resolve the level playing field issue. All concerned, including those that are not yet participating partners, have been invited to complete a template questionnaire.
In the meantime Jersey is continuing with its TIEA negotiations with a number of OECD member states. This is on the basis that, only if the outcome of these negotiations can be shown to be of sufficient economic benefit to more than compensate for any costs incurred in engaging in information exchange on request ahead of its main competitors, would individual agreements be presented to the States of Jersey for approval. In judging this balance of advantage regard will continue to be had for the extent to which there is a continuing absence of a fair and level playing field and in particular whether, notwithstanding that a TIEA may have been entered into or is being negotiated, Jersey is still figuring in a list of tax havens or offshore centres against which discriminatory action is being taken.
The overall impact of the OECD initiative has been limited as a result of the failure to provide the required level playing field. In addition, initial concerns have been allayed in that the OECD is no longer concerning itself with tax rates or tax structures. The emphasis is on transparency and exchange of information on request and providing there is an international non-discriminatory level playing field in this respect this is not a matter that need be of great concern for the island. The financial services business development of the island is also increasingly institutional/corporate in nature and those engaged in such business expect to benefit from the fact that with the signing of TIEAs the present discriminatory action taken by a number of jurisdictions, which currently affects access to capital markets etc, will be withdrawn. The island authorities are determined to secure this result.
Overall it can be said that through its response to both the EU and OECD tax initiatives the island has been able to enhance greatly its international personality; and to convey to EU and OECD member states that it is a participating partner and prepared to pursue a constructive good neighbour policy committed to sound principles of effective international cooperation; but at the same time to show that it is determined to maintain the competitiveness that is essential for its continued success as an international finance centre.
Further information
Further information on the OECD Project on Exchange of Information can be obtained from the OECD website at http://www.oecd.org/ or from:
Martin De Forest-Brown
Director – International Finance
Chief Minister's Department
States of Jersey
Telephone: + 44 (0)1534 440420
Email M.DeForest-Brown@gov.je
Colin Powell
Adviser – International Affairs
Chief Minister's Department
States of Jersey
Telephone: + 44 (0)1534 440414
Email c.powell@gov.je
