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July 5, 2012
Jersey Threatens to Cut Ties With U.K. Over Tax Accusations

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by Randall Jackson

The Channel Islands bailiwick of Jersey, one of three British Crown dependencies,1 is considering a break from its 900-year relationship with the U.K. as a result of London's continued political attacks on the island over its tax haven status and alleged facilitation of tax avoidance.

Under increasing pressure from the U.K. -- and with public anger growing over Jersey's (and other tax havens') perceived role in helping wealthy U.K. taxpayers and corporations avoid paying taxes -- the Jersey government senses a tangible threat to Jersey's low-tax status, a prime driver of its economy. At the least, the island's legal and regulatory systems are expected to come under closer scrutiny.

Jersey Chief Minister Philip Bailhache, in a June 26 interview with the U.K. newspaper The Guardian, said relations between Jersey and the U.K. have been "strained" over the past several years as their interests have diverged, and that Jersey should be ready to escape the "thrall of Whitehall" if necessary.

"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," he said. "Independence is quite a long way down the road, but I do feel and I have been saying for quite a long time that we should not close our eyes to this possibility."

In the short term, Bailhache said, Jersey plans to open an office in London with the specific goal of improving the island's tax image among the British public. (Jersey has already opened a similar office, together with Guernsey, in Brussels.) Noting Jersey's many tax information exchange agreements with EU member states and other countries, Bailhache stressed that Jersey does not market itself as a tax haven or a tax avoidance facilitator.

"We understand that the movement is towards collecting as much tax as the U.K. legitimately can do and it's not part of our function to help U.K citizens to avoid paying their dues in the U.K.," he said.

But despite the island's efforts to downplay its use for tax avoidance, Bailhache said, the real issue is why the U.K.'s and other jurisdictions' tax laws are written in such a way that they allow legal avoidance, which is then condemned.

"I think this idea that there is some kind of grey area where things are within the law but you shouldn't do them is potentially quite difficult," he said. "People have to ask themselves: 'If you feel strongly [about] something people ought not to be doing, why don't you change the law to make it unlawful?'"

Tom McNally, the U.K. minister of state for justice (whose responsibilities include the Crown dependencies), told reporters in London on June 26 that he is aware of the tensions with Jersey. He acknowledged the presence of independence movements, but said he thinks it would be "ill-advised" for the island to seek full independence.

All three Crown dependencies are self-governing, and have their own parliaments and legal, financial, judiciary, and regulatory systems. Queen Elizabeth II is head of state and is represented in each Crown dependency by a lieutenant governor. None of the Crown dependencies are part of the EU, but they enjoy special treaty relationships with Brussels.


FOOTNOTE

1 Possessions of the British Crown but not part of the United Kingdom. The other two are Guernsey, including Alderney and Sark, and the Isle of Man.

END OF FOOTNOTE


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