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UK To Take No Action Over Channel Island VAT 'Loophole'

by Jason Gorringe, Tax-News.com, London

26 March 2007


Jersey has announced that recent actions by the Channel Islands authorities in the CD/DVD sector, and a recent commitment from the Jersey government to continue to address issues related to Value Added Tax (VAT) losses resulting from Low Value Consignment Relief (LVCR), had been viewed very positively by the UK Treasury.

The States authorities said last week that at the invitation of the UK Treasury, representatives of the Jersey Economic Development Department have met UK Government officials on a regular basis to address concerns about the loss of UK VAT resulting from fulfilment activity in Jersey. In the course of these meetings, HM Treasury officials have made it clear that the constructive approach taken by the States of Jersey, including the ongoing implementation of the current fulfilment policy, has proven instrumental in the Treasury’s decision not to legislate to prevent further VAT losses at this time.

The LVCR provision allows retailers to sell goods such as CDs, DVDs, computer games and contact lenses that are valued at under GBP18 VAT-free from Jersey and Guernsey back to the UK through websites. The Channel Islands are not part of the EU for VAT purposes and, therefore, goods under this value sent by mail order from the Islands are exempted from VAT.

However, representatives of small retailers in the UK have lobbied the government to scrap the exemption, complaining that it puts them at a competitive disadvantage.

The Economic Development Department (EDD) has said that it has developed policy in the fulfilment sector to preserve the significant levels of employment and GVA contribution made by companies in the sector. The policy, implemented in February 2006, encouraged the further development of the sector through Jersey-owned whole chain companies, whilst limiting the Island’s exposure to large UK retailers utilising third party suppliers to deliver CDs and DVDs in to the UK.

Economic Development Minister, Senator Philip Ozouf stated:

“This is a new global industry which has developed in Jersey following the rapid emergence of on-line retailing over the World Wide Web. On-line retailing is becoming an increasingly important part of day-to-day life in Jersey, the UK and across the globe. However, as with all new innovations, careful thought and detailed planning is required by the Economic Development Department to ensure that the sector develops positively, without unacceptable damage to others. I am pleased that Jersey continues to play an active role in the high-level negotiations that secure the Island’s position in this evolving market. By doing so, we will safeguard Jersey’s own interests as well as fulfilling our international obligations."

"We are confident that our discussions with the UK Treasury are progressing well and that we will succeed in establishing a framework for the future which is acceptable to the Treasury and to ourselves.”

A comprehensive report in our Intelligence Report series looking at offshore and onshore corporate structures and their tax implications is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report7.asp

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