Jersey should be prepared to rethink its relationship with the United Kingdom as a Crown Dependency, in response to aggressive tax policy from the UK government which has increasingly targeted the Channel Islands and soured ties, Jersey's Assistant Chief Minister has said.
In comments to the UK newspaper, the Guardian, Assistant Chief Minister Philip Bailache stated his belief that the island is being given "a raw deal" by the United Kingdom government. He said:
"I hope that the constitutional relationship with the UK will continue. But if it becomes plain that our interests in fact lie in being independent it doesn't seem to be that we should bury our head in the sand and say we're not going to do that."
"The island should be prepared to stand up for itself and should be ready to become independent if it were necessary in Jersey's interest to do so."
The statement comes after the most recent damaging development between the island and the United Kingdom, in which tax planning arrangements in Jersey were publicly denounced by UK Prime Minister, David Cameron, as "morally wrong", after publicity of a well-known UK comedian's use of a scheme to mitigate UK income tax. The government has commenced a consultation on a General Anti-Abuse Rule, which would make it more challenging to market tax planning schemes to UK participants.
This follows a raft of controversial policies that have been introduced since the crisis. Prior to the recent publicity on tax avoidance schemes, the UK tax authority HM Revenue and Customs failed to adequately communicate changes to rules in relation to the tax-free transfer of UK pensions to overseas pension schemes. The proposals led to several territories introducing fresh pension scheme structures to comply with the incoming rules as they were understood at the time, only for many new and existing schemes to fail to achieve compliance. The rule change, which was particularly damaging for Guernsey, amended requirements so that pension funds can now only be transferred from the UK to another territory free of tax if they are transferred to a Scheme that is managed in the same territory as the expatriate's new country of residence - putting a stopper on a profitable industry for many financial centres.
Guernsey, which saw 99% of its domestic schemes wiped from the UK's list of Qualifying Recognised Overseas Pension Schemes, said at the time it felt "singled-out" by the UK. Seeking clarification, the government said at the time: “The current actions have been introduced without warning, lack transparency and appear discriminatory. Indeed, [the UK tax authority] HM Revenue and Customs seems to have set aside its own rules to meet an unpublished policy objective."
Earlier, in March 2012, the Channel Islands decided to legally challenge UK tax policy in relation to proposals to repeal UK Low Value Consignment Relief for Channel Islands exporters. The long-standing LVCR scheme allows goods to be imported into the UK from non-European Union territories for sale in the United Kingdom free from value-added tax providing they are priced at less than GBP15 (USD23). From April 1, 2012, the United Kingdom controversially removed the exemption for the Channel Islands, while the relief remains in place for exporters from other non-EU nations, in a move expected to decimate the islands' fulfilment industries.
As part of its tax-grab since the crisis, the UK government has also revised the terms of the Value-Added Tax sharing agreement with the Isle of Man, requiring the island nation to introduce new tax measures to counteract the tax shortfall.
In a recent blog post responding to the recent tax avoidance publicity, the Chief Executive of Jersey Finance, the promotional agency for the island's financial services industry, Geoff Cook noted that Cameron's comments are ironic on the basis that the Prime Minister acknowledged the importance of tax competition in the same week, with regard to French proposals to hike income tax for top earners to 75%. Cameron said: “If the French go ahead with a 75% top rate of tax we will roll out the red carpet and welcome more French businesses to Britain and they will pay taxes in Britain and that will pay for our health service, and our schools and everything else.”
UK tax law is extremely complicated, with Tolley's Tax handbook on the Code spanning 11,500 pages of explanation, Cook noted, adding that it is further complicated by the addition of tax incentivized schemes to encourage investments into key industries, which earn the United Kingdom billions of pounds. He noted in addition that historically there has been but a thin line on what constitutes aggressive tax avoidance in the United Kingdom. Cook noted: "When we buy duty free we are avoiding tax, invest in a pension or an ISA we are avoiding tax, accept a benefit in kind rather than cash, we are avoiding tax, run our affairs through a company utilizing dividends as opposed to paying income tax and national insurance we are avoiding tax, and so it goes on. Neither is tax avoidance the privileged domain of big business or high net worth individuals."
"Of course the difficulty with introducing morality into tax is one man’s tax planning is another man’s 'aggressive' tax avoidance."
Noting hypocrisy by the government, following the expenses scandal relating to UK MPs, Cook said that Cameron's comments regarding 'immorality' could well come back to haunt him as he opens the door to press scrutiny of Tory Party donors' tax planning arrangements. He noted also the findings announced by Danny Alexander, Chief Secretary to the Treasury to Parliament, that an HM Treasury Review had uncovered large scale public service tax avoidance.
Urging a more thoughtful response from politicians, Cook urged that the individual judgment of personal tax affairs should be "a matter for tax administrations and not the court of public opinion"..
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