Friday, December 24, 2010

Jersey: the UK has the power to intervene on tax matters

The Jersey Evening Post is carrying a letter from Pierre Horsfall concerning the failed zero-ten policy. The gist of the letter is that since the island is not part of the European Union (its relation to the Union is defined in a separate protocol to the UK's treaty of accession) it does not have direct relations to the EU and that neither the EU nor the UK have the power to intervene in the island's fiscal policies.

We believe Horsfall is wrong. The EU Code of Conduct process was initiated to iron out harmful tax practices that would distort Europe's markets. For obvious reasons, Brussels sought to ensure that tax havens on the European periphery would not provide boltholes to circumvent this process. The UK agreed this position. The question is: does the UK have the power to intervene in Jersey's fiscal policy making? The answer is yes. Despite a long-standing tradition of non-intervention, the UK is fully responsible under international law for the good governance of the British Crown Dependencies. This extends to matters relating to how the latter's fiscal policies impact on third party countries. Brussels has determined, rightly in our opinion, that the details of the zero-ten policy were designed for the purpose of creating a ring-fence mechanism that differentiated between local resident shareholders and non-resident shareholders. This contravened the Code of Conduct, and has consequently been deemed unacceptable.

The EU is right to have struck down the detail of the zero-ten policy, and is right to require the UK to enforce the good governance of its dependent territories. Horsfall (who was President of the island's Finance & Economics Committee during the period when many tax haven measures were implemented) and his successors are deluding themselves - and more importantly their fellow islanders - by trying to pretend that the UK has no power to impose on the island's tax policies. They have such powers and are right to use them to counter the abusive aspects of the zero-ten policy. The shame lies in the fact that Jersey's rulers pushed the abuse to the point that the UK government has had no choice other than to intervene in matters where historically they have preferred to respect a high degree of local autonomy.


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