Posted: 30/11/2012
A leaked report, high-profile meetings in Whitehall and a wall of silence from ministers across the Channel Islands – it has been an exciting end to November for Jersey and Guernsey's offshore sector.
It all began with a story in an online magazine, International Tax Review (ITR), which claimed to have seen a leaked government report that proposed setting up a UK version of the US Foreign Account Tax Compliance Act (FATCA) – the law that requires financial institutions worldwide to share information about US taxpayers' assets with the country's Internal Revenue Service (IRS).
Quirkily-named ‘son of FATCA', the UK law – according to ITR – would require a similar level of information sharing between the Channel Islands and the Isle of Man and HM Revenue and Customs (HMRC), and could also apply to British overseas dependencies, including the British Virgin Islands and Cayman Islands.
Both Jersey and Guernsey have been tight-lipped all this week, confirming only that they, as well as the Isle of Man, were holding meetings with UK officials to discuss the proposals. The story has appeared to come completely out of the blue for the islands, especially given that the UK Treasury earlier this year publicly ruled out a UK version of FATCA.
A statement from Jersey's Chief Minister's office was vague and couched in non-committal language, admitting only that: “interest has been shown by the OECD and the EU in the possible wider application of the principles behind the US FATCA arrangements.
“The UK has approached the Crown Dependencies and the overseas territories with a view to the principles possibly being more widely applied to an exchange of information with the UK. Officials from the three Crown Dependencies are meeting HM Treasury officials to understand what exactly the UK has in mind.”
Requests for more information to Jersey's Chief Minister Ian Gorst, Assistant Chief Minister Sir Philip Bailhache and Finance Minister Philip Ozouf by businesslife.co were all declined. On Thursday morning, a spokesman for the Chief Minister said that no further information would be available “until Crown Dependency officials present at the meeting have reported to relevant ministers and ministers have considered their report.”
We don't expect that information to be forthcoming until next week.
The coming storm
Experts say that the news could be much more than a storm in a teacup. Graham Parrott, a tax partner at Ernst and Young in Guernsey, says that a UK FATCA would be particularly harmful in that, unlike the US FATCA, it will likely only apply to British-linked offshore centres. As a result, Channel Islands business would probably just go elsewhere in the world.
Some are arguing that this may mean the UK effectively shoots itself in the foot as liquidity provided to the City by the Channel Islands may be significantly reduced as a result.
“And if the reporting requirements are extended to UK resident but non-domiciled individuals (non-doms), then that could have an even greater impact,” Parrott says. “It would be ironic in that case that the affected businesses in the Crown Dependencies, or whichever places this is to apply to, would have to provide more information than the non-doms themselves are currently required to do.'
The new law would cover some of the same areas as the EU Savings Directive, which already requires that Guernsey and the Isle of Man share information on UK taxpayers with HM Revenue and Customs (HMRC), but in this respect Jersey has more to lose.
“Jersey has no automatic exchange, so the change in Jersey as far as this UK reporting is concerned would be greater than Guernsey,” continues Parrott. “To that extent it would be right to say that the impact will be greater in Jersey than Guernsey.”
Talk of a UK FATCA comes at a time of significant furore about low-tax jurisdictions, with a series of articles in the UK press focusing on the offshore sector as well as a very public run of UK Public Accounts Committee (PAC) inquiries into the tax practices of major international companies such as Starbucks, Amazon and Google. It also comes as anti-offshore bodies such as the Tax Justice Network are making a lot of noise about the amount of cash the British Treasury is losing to low-tax jurisdictions. The timing, Parrott believes, is no coincidence.
“In any case this seems more about politics than revenue raising, but that was exactly what happened around the removal of low-value consignment relief where it was just the Channel Islands affected. Whilst much of this business has gone elsewhere, the clamour has died away,” he says.