Jersey companies will have to prove they're the 'real deal'

Monday 18 June 2018

Concrete business plans, detailed information on employees and proof decisions really are being made on the island – these are just a few of the things the EU want companies to provide to show they’re the real deal, and not just ‘shells’ taking advantage of the Jersey’s rules.

Last year, the island was at the centre of financial scandal for a second time in just two years after the Paradise Papers revealed that Apple’s key subsidiaries were ‘resident’ in Jersey.

Just one month after the iCash exposure, Jersey avoided being blacklisted by the EU, and was instead placed on a ‘grey list' and told to make improvements.

Those changes focused on showing that companies listed as being based on the island – many of which relate to Intellectual Property (IP) rights, such as in the case of footballer Paul Pogba – were genuinely located and operating there.

Documents exposed that Apple found a new tax haven to stash its billions out of the U.S. government's reach https://t.co/SUfcRNlgxt pic.twitter.com/EFkfQt6aWG

— The New York Times (@nytimes) November 6, 2017

"A way to achieve this could be through the imposition of substance requirements, where appropriate,” EU finance officials wrote last year in a letter to Jersey, and several other low-tax jurisdictions deemed to be in need of improvement. 

Now, in a 54-page report published this month, the EU Code of Conduct Group for Business Taxation have outlined how those requirements should look.

According to the guidance, not only should businesses prove that they are undertaking research and development, marketing and branding activities, but should also be able to provide:

• “Detailed business plans which allow to clearly ascertain the commercial rationale of holding IP assets in the jurisdiction, 

• Employee information including level of experience, type of contracts, qualifications, duration of employment, 

• Concrete evidence that decision making is taking place within the jurisdiction. “

Such information, they explained, would help “prove that in the jurisdiction there is more than local staff passively holding intangible assets whose creation and exploitation is a function of decisions made and activities performed outside of the jurisdiction” and instead show that decisions were being made actively and regularly by “local, permanent and qualified staff.” 

The topic of beneficial ownership, which recently stirred tensions after it became the subject of a House of Commons legislation debate with a view to flushing out assets linked with criminality and corruption or held by Russian oligarchs, was also addressed.

Video: MPs hit out at the Crown Dependencies, which includes Jersey, during the debate.

The Group called for ‘non-cooperative jurisdictions’ to ensure that they had up-to-date beneficial ownership registers in place, which should be electronically searchable. This, they said, would enable “the instantaneous query of ownership information across jurisdictions through, for instance, a single interconnected query platform.”

Jersey’s new External Relations Minister, Senator Ian Gorst, welcomed the guidance, but said that “further dialogue” was still needed to “confirm a number of areas of policy.”

“We will continue to work across Government, the JFSC and industry to develop a package of measures that, we believe, should satisfy the EU’s concerns on economic substance in Jersey.

“The exact nature of that package of measures will require detailed discussion with the Code of Conduct Group and EU Commission Services over the coming months. Given the time that has already elapsed, I hope that these discussions take place imminently - in order to meet our commitment to address any perceived concerns by the end of 2018.” 

Pictured: External Relations Minister Ian Gorst said further discussions about the regulations would be needed.

The EU Code Group’s comments come while a Treasury Sub-Committee investigation gets underway into “what progress has been made in reducing the amount of tax lost to avoidance and offshore evasion.”

In a submission, tax expert Professor Richard Murphy suggested that, if implemented, the EU Code Group’s suggestions would “shatter Jersey as a corporate tax haven.”

“In other words, Jersey will cease to be a location where 86% of companies can trade anonymously, and without account for their actions to any tax authority, anywhere,” he said.

However, Jersey Finance – the body responsible for promoting Jersey as an attractive international finance centre – felt that the island had had enough regulation. In their Committee submission, they stated that no further measures were needed to tackle tax dodging. 

“Jersey’s success in meeting international standards, together with significantly lower yields resulting from the Crown Dependencies Disclosure Facilities demonstrate that there is no requirement for the UK to take further steps to address any perceived problem,” they said. 

Senator Gorst will provide an update to States Members on Jersey’s increasing scrutiny under the international microscope at the first ‘ordinary’ sitting of the new States Assembly on Tuesday 26 June.