IFCs and their Future
The April 2009, G20 London Summit, was a seminal moment, when the whole world focused on Global Financial Stability, Banking Secrecy and Tax Havens.
Almost a year on these topics continue to feature in the news with the UK tentatively emerging from the longest recession since records began in 1955.
In Jersey, we have seen No bank failures, No banking stability issues, and No major headline fund failures. Like all centres we have seen some job losses, and regrettable though they are; we have not experienced the deep cuts seen elsewhere.
We have proven, stable financial institutions, with deep pools of advisory and administrative expertise, we have political and fiscal stability, with high levels of reserves, and the ability to stimulate our economy without recourse to borrowing.
We are meeting, and in some cases exceeding, the highest International standards of corporate governance, and regulatory compliance. Our recent IMF review makes it clear that Jersey is in the ‘top tier’ of international finance centres, including those in the G20 and EU.
As the leading IFC in the GFCI and as STEP IFC of the year there can be no doubt that our reputation with informed commentators has been enhanced through the crisis.
So Jersey is in good shape – Our standing in the global rankings of international finance centres is high, and we will come through the crisis and the global slowdown stronger, leaner, and fitter.
Contrast this with other centres who are being shaken by stability issues, fiscal imbalances and governance challenges;
But detractors and the poorly informed have laid at our door the charge that we are responsible for tax leakage, that we are secretive, and that we are poorly regulated, and contribute to financial instability.
I would contend that any meaningful examination of the facts will not support these charges, and that we have proven beyond any question that we are a cooperative, transparent and well regulated centre, indeed arguably the best regulated in the world.
The publication of the report on British Offshore Financial Centres; a year long independent review undertaken by Michael Foot, and supported by a team from HMT, concluded that Jersey is amongst the best performers of the Crown dependencies and Overseas Territories.
The report also made clear that the estimates of tax leakage advanced by our detractors are grossly exaggerated, and that the contribution of Jersey sourced deposits to the UK banking system at $200bn, is both substantial and extremely valuable.
But we are no strangers in Jersey to international scrutiny; we were subject to requests to amend our tax arrangements as far back as the OECD Harmful Tax Competition programme in 1998.
More recently it appears the EU Code of conduct group have indicated that our tax system may not meet with the ‘Spirit’ of the EU code of conduct on business taxation. This is interesting as the UK had previously indicated our tax system did meet code requirements, especially as we have a diversified tax base including corporation tax, income tax, property taxes, customs duties, and a goods and services tax.
Of course we offer benign tax treatment to non residents, as do a large number of other countries, including many EU member States. It is certain for example the United Kingdom and the US could not fund their significant budget deficits without offering tax free returns to overseas investors.
But we need to distinguish here between tax transparency and tax competition. Jersey is no friend to tax evaders and criminals.
We have achieved the highest ratings of any country under the IMF FSAP inspections, and have been a leading and willing participant in the OECDs Tax Information Exchange programme since 2002. Last year we filed over a thousand suspicious transaction reports, and cooperated in over 700 investigations
Tax evaders should not be able to use jurisdictions to hide non disclosed wealth. Recently published research conducted by Professor Jason Sharman, of Griffith University, Sydney, Australia; proves that Jersey has a better record of fighting this kind of activity than many larger countries, including the UK, France and the US.
Some commentators have observed the debate over tax transparency and tax competition looks very much like big countries with large budget deficits, (the high tax, high spend, large government countries, and their trading blocs and agencies) seeking to impose their view of the world, on smaller less powerful nations.
It is after all much more difficult to keep raising taxes if your citizens are mobile, and can move themselves and their wealth to a more attractive environment.
Given this backdrop it is not surprising that the subject of tax receipts and cross border activity has come to the fore again, as cash strapped governments look for solutions.
The truth, however unpalatable, is that the crisis had its roots anchored firmly in debt taken on in the major western deficit economies.
This had everything to do with central bank interest rate policy and a lack of effective financial supervision, and nothing whatever to do with Financial Centres, such as Jersey.
Jersey competes for business on exactly the same basis as the 70 other countries in the world who offer some kind of benign tax neutral regime to the overseas investor; that is on a mix of business expertise, political and social stability, modern infrastructure, good communications and sound regulation.
IFCs act as way stations, gathering capital from around the world where it is not needed, and then conduiting