Global transparency in financial services probably wasn’t the first thing on people’s minds as they woke up on the first day of 2017. Nevertheless, the 1 January 2017 marked a pivotal moment in the way information relating to international financial flows are handled.
The fact that right now the authorities in 54 countries – the ‘early adopters’ - are for the very first time sharing tax information automatically under the OECD’s Common Reporting Standard (CRS) is a remarkable achievement and a reflection of just how far global transparency has come. This time next year, more than 100 countries will be operating under the regime.
It really is a sea change in how authorities around the world can monitor their residents’ financial affairs. If there is any dubious activity in any of the participating countries and jurisdictions, CRS will root it out. At the same time, it should also once and for all put to bed some of the speculative allegations about illegal activity that are often levelled at international financial centres.
From Jersey’s point of view, we have long held the view that that sort of business simply doesn’t exist here. We’re confident about that because our front-end defences and tax evasion and anti-money laundering checks are amongst the strongest in the world, meaning it is nigh on impossible for non-disclosed money to get through.
Firms in Jersey require investors to explain the source and origin of their money and who they are; if there’s any suspicion at all that there is an element of non-disclosed money involved, the firms have a legal obligation to report it. If it isn’t reported, firms are complicit in helping to facilitate illegal activity and that could result in 15 years in prison. That’s quite a sanction. People won’t do it - it’s too risky.
We don’t expect there to be a sudden outflow of assets from Jersey as a result of CRS either. For more than a decade now, Jersey has offered on-request information exchange, which has proven an effective means of international cooperation and helped ensure assets held in and managed through Jersey are of a high quality. In fact, Jersey’s first tax information exchange agreement (TIEA) was signed 15 years ago this year (2002) with the USA.
The move to automatic information exchange under CRS, however, effectively means that there simply won’t be a piece of business in any of those jurisdictions signed up to it – Jersey included - that won’t be known about by the investor’s home tax authority. Any country wanting to know about the tax affairs of a resident will have full and direct sight of all of their arrangements.
As one of the 54 early adopters of CRS, all this will mean that Jersey can now demonstrate unequivocally that it is not the safe haven for illegal money that some lobby groups seem convinced it is.
Further, Jersey’s tax system for international investors works incredibly well. It’s a simple, honest and transparent tax system, not based on tax deals or treaties, that makes sure people pay the right amount of tax in the right place at the right time (see blog on tax neutrality). Moreover, half the value of Jersey’s finance industry is corporate and institutional anyway, including sovereign wealth funds and pension funds, investments that are either fully tax compliant or not subject to tax.
And because Jersey firms have been exchanging information under a similar mechanism with the UK for some time now, the reporting arrangements and professionalism with which information exchange is done is well ahead of other jurisdictions. There’s even scope for Jersey to become a centre of excellence in international reporting, given the experience people here have in collecting, managing and sharing data.
Under CRS, those who cling on to the conviction that Jersey is a hiding hole for institutions and people all over the world to place undeclared asserts, will be sorely disappointed. The ‘big reveal’ of CRS will prove that there is no scope for unlawful tax schemes to be housed in Jersey and that what we have been saying for years is the reality. It will also show that the allegation and speculation levelled at us in recent years rings very hollow indeed.