Whenever there is a reference to tax neutrality or a zero rate of tax, it seems that many folk assume the investors concerned are not paying tax. In particular, the national and international media are quick to seize on such instances and portray them as examples of tax evasion or aggressive tax avoidance.
The fact is that tax neutrality is not a mechanism to avoid paying tax where it should be paid. It is designed to ensure that investors do not pay tax on their returns more than once.
There is no tax dodge in play. Investors still need to meet their tax obligations at home.
The issue of tax and where it should be paid came to the forefront in the media again recently in relation to a number of professional footballers who were placing funds they earned from their image rights into vehicles in offshore jurisdictions.
These vehicles are taking advantage of tax neutrality, but the tenor of the reports was clearly accusatory. French footballer, Paul Pogba, reputedly the best paid footballer in the Premier League, featured in many newspaper reports, though quite what he was supposed to have done wrong is never specified.
The implication in such reports is that by placing assets offshore, high earning international footballers are at fault and so, by association, are we as a jurisdiction. The truth is very different.
Although not privy to the details, the likelihood is that, as a very high earning Frenchman living and working in the UK, he is entitled to take advantage of the UK’s non-domicile scheme. Under the rules, the ‘non dom’ pays tax in the UK on remitted income and gains such as their salary, but not on unremitted sums. On that basis, footballers who earn substantial sums from sponsorships and endorsements in countries all over the world and qualify as non doms are not liable in the UK for tax on those international earnings. It’s a standard, perfectly legal arrangement which really should not provoke any sort of media storm.
The non dom scheme has been devised by the UK authorities to incentivise very high earners to base themselves in the UK. The creation of such incentive schemes has nothing to do with international finance centres (IFCs) like Jersey. But where we do have a role is to provide the location where those international earnings can be legitimately housed – a tax neutral environment.
If footballers have a trust or settlement in Jersey and the image rights are owned in that settlement, they will be taking the endorsements and sponsorship fees earned globally and they will use the Jersey vehicle as a hub for pooling that international value. As a leading IFC, Jersey is the perfect, stable, well-regulated jurisdiction to act as the neutral holding point for that international value.
Of course, the British government is entitled to change its non dom scheme if it wants to, and has done in recent years to increasingly target only the highest economic contributors. It is a decision entirely for them and the UK has to take into account the financial benefits it can accrue from having super high earners residing in the UK. And of course other countries have comparable non dom schemes of their own.
For Jersey’s part there is no scope for unlawful tax schemes to be housed here, thanks to its rigid enforcement of rules, whilst its framework of tax exchange agreements, further reinforced by the introduction of the OECD’s Common Reporting Standard, means Jersey can actually act as a filter of quality when it comes to the finances of internationally mobile high earners.
The terms tax neutrality or zero tax used in an environment in which any form of tax avoidance is under the microscope have perhaps become unhelpful. As an industry, we have to grasp this issue and make greater efforts to explain it more accurately – a theme I’ll be returning to in these blogs throughout 2017.