States Minutes 20th April 2004

THE STATES assembled on Tuesday, 20th April 2004 at 9.30 a.m. under

the Presidency of the Deputy Bailiff , Mr.  Michael Cameron St.  John Birt, Esq .

His Excellency the Lieutenant Governor,

Air Chief Marshal Sir John Cheshire, K.B.E., C.B., was present

All members were present with the exception of –

 S enator Jean Amy Le  Maistre – out of the Island

S e nator Terence Augustine Le  Sueur – out of the Island

K e nneth Priaulx   Vibert , Connétable of St.  Ouen–  out of the Island

A l an Simon Crowcroft , Connétable of St.  Helier – out of the Island

J o hn Le  Sueur Gallichan, Connétable of Trinity – out of the Island

D a vid Leon Crespel, Deputy of Trinity – out of the Island

P h ilip John Rondel, Deputy of St.  John – out of the Island

M  aurice François Dubras, Deputy of St.  Lawrence – out of the Island L y ndon John Farnham – out of the Island

J u dith Ann Martin – Deputy of St.  Helier – ill

G e offrey John Grime, Deputy of St.  Mary – ill

J a cqueline Ann Hilton, Deputy of St.  Helier – out of the Island

Prayers

Tribute to Sir Martin Le  Quesne, K.C.M.G.,the late former member of the States

The Deputy Bailiff paid tribute to the late Sir Martin Le  Quesne, K.C.M.G.,former Deputy of St. Saviour. The States observed one minute's silence as a mark of respect.

Lord Falconer visit – 10th May 2004

The Deputy Bailiff announced the visit of Rt. Hon. the Lord Falconer of Thoroton, Lord Chancellor and Secretary of  State  for  Constitutional  Affairs,  accompanied  by  Mrs.  Belinda  Crowe,  Head  of  Devolution  and  Crown Dependencies Division at the Department for Constitutional Affairs on 10th May 2004.

Subordinate legislation tabled

The following enactments were laid before the States, namely –

Shipping (Fishing Vessels – Safety Training) (Jersey) Order 2004. R&O 24/2004. Shipping (Distress Signals and Prevention of Collisions) (Jersey) Order 2004. R&O 25/2004.

Shadow Scrutiny Panels – resignation of member

THE STATES noted the resignation of Kenneth Alan Le  Brun, Connétable of St.  Mary from the Shadow Scrutiny Panels.

Matters presented

The following matters were presented to the States –

Migration Policy. R.C.15/2004. Presented by the Policy and Resources Committee.

Manpower survey as at 31st December 2003. R.C.16/2004. Presented by the Economic Development Committee.

Youth Custody for persons aged 12 and over (P.2/2004): addendum to comments. P.2/2004. Presented by the Education, Sport and Culture Committee. Com.(3) Add.

Youth Custody for persons aged 12 and over (P.2/2004): comments. P.2/2004. Presented by the Health and Social Services Committee. Com.(4)

Machinery of Government: votes of no confidence in individual ministers P.6/2004. (P.6/2004) – comments. Com.(2). Presented by the Policy and Resources Committee.

Draft Competition (Jersey) Law 200- (P.27/2004): comments. P.37/2004. Presented by the Finance and Economics Committee. Com.

Residential  and  Business  Parking  Scheme,  Stopford  Road,  St.  Helier:  Fees P.47/2004. (P.47/2004) – comments. Com. Presented by the Environment and Public Services Committee.

Residential  and  Business  Parking  Scheme,  Stopford  Road,  St.  Helier:  Fees P.47/2004. (P.47/2004) – comments. Com.(2) Presented by the Finance and Economics Committee.

Former School, Clearview Street, St.  Helier: proposed sale (P.49/2004) – P.49/2004. Com. comments.

Presented by the Health and Social Services Committee.

Draft Milk (Sale to Special Classes) (Jersey) Regulations 200- (P.50/2004): P.50/2004. comments. Com. Presented by the Finance and Economics Committee.

The following matter was presented on 6th April 2004 –

Youth Custody for persons aged 12 and over (P.2/2004): comments. P.2/2004. Presented by the Education, Sport and Culture Committee. Com.(3)

The following matter was presented on 13th April 2004 –

States Members' Remuneration: increases for 2004 – rescindment (P.11/2004) – P.11/2004. comments. Com.(2) Presented by the Finance and Economics Committee.

THE STATES ordered that the said reports be printed and distributed. Matters noted – land transactions

THE STATES noted Acts of the Finance and Economics Committee dated 1st and 15th April 2004, showing that, in pursuance of Standing Orders relating to certain transactions in land, the Committee had approved –

1st April 2004

( a ) as recommended by the Environment and Public Services Committee, the sale to Mr.  Edward James

Andrew Clucas and Mrs.  Angela Kent Clucas, née White, of an area of land adjoining the property known  as  Sandpiper,  Pontac,  St.  Clement  on  which  an  encroachment  onto  public  land  had  been established, for a consideration of £10,000, on the basis that Mr.  and Mrs.  Clucas would be responsibl for both parties' legal costs arising from the transaction;

( b ) as recommended by the Environment and Public Services Committee, the lease to Mrs.  Gladys Faith

Dunell, née Bayliss, and Messrs. Desmond Albert Pinel and Winston Clifford Pinel, of an area of land (measuring 465  square feet – as indicated on drawing No.  15/335/4) adjacent to the Beaumont Pumping Station, La  Route de la  Haule, St. Peter, required for general access and loading/unloading purposes, fo a period of nine years from 1st January 2004, with an option to renew for a further nine years, at an initial annual rent of £1,000 subject to rent review every three years in line with the Jersey Retail Price Index, on the basis that each party would be responsible for its own legal costs arising from the transaction;

( c ) as recommended by the Environment and Public Services Committee –

 ( i ) t h e purchase from the Crown of a strip of land forming the track to the south of the property

known as the Cheval Roc Hotel, Bonne Nuit, St.  John for the sum of£10; and

 ( ii ) th e entering into a Deed of Arrangement with the Parish of St.  John and also the owners of the

adjacent properties known as "Le  Caigibi", "The Maples", "La Colline", "Condora" and "White Heather" in order to ratify those matters set out in a report, dated 10th March 2004, prepared by the Director of Property Services;

o n the basis that each party would be responsible for its own legal costs and professional fees arising from the transaction;

(d ) as recommended by the Education, Sport and Culture Committee, the entering into of a Deed of

Arrangement with APC Limited in order to clarify and confirm the boundaries of the Beach Gardens development towards the adjoining public land, in particular St.  Clement Infants School, Le  Rocquie Secondary School, and Fields Nos.  131 and 131a, La  Rue du Pontliétaut to the south, on the basis tha each party would be responsible for its own legal costs and for an equal share of those remaining costs payable in connexion with the preparation of the survey documentation totalling £660.

15th April 2004

 ( e ) as recommended by the Environment and Public Services Committee, the sub-lease to Paul Davis

Freight  Services  Limited  from  Avo  Shocks  International  of  Unit  5,  La Rue  Gosset,  La  Collett St.  Helier, for a period of nine years from a date to be agreed, at an annual rent of£42,000, with the remaining terms to be those contained in the head lease between the public and the Head Lessee, on the basis that the head lessee would be responsible for meeting any reasonable legal and surveyors fees arising from the transaction;

( f)  as recommended by the Economic Development Committee, the lease to Mr. Richard John Baudains, of

La  Pepinière Farm, La  Rue de Crabbé, St.  Mary, of Fields Nos.  330 and 331, St.  Mary (required for the grazing

cattle) at an annual rent of £225, with the lease being deemed to have commenced upon the completion of the contract for a period of three years, on the basis that each party was to be responsible for its own legal costs arising from the transaction;

( g ) as recommended by the Economic Development Committee, the sub-lease to Master Farms Limited, of

Westlands Farm, Route de Francfief, St.  Brelade, of Fields Nos.  810 and 811, adjacent to The Elms St.  Mary, from the National Trust for Jersey (which had agreed to the sub-lease in accordance with clause 3(ii) of the Head-Lease), for a period of 21 months from 25th March 2004 until 24th December 2005, at an annual rent of £1,510 payable in two equal instalments on 24th June 2004 and 2005. All other terms and conditions were to remain as in the Head-Lease and each party was to be responsible for its own legal costs arising from the transaction;

( h ) as recommended by the Housing Committee, the lease to the Jersey Electricity Company Limited of an

area of land sufficient for the provision of the proposed electricity sub-station (No.  650) at the former Le  Coie Hotel Redevelopment site, Janvrin Road, St.  Helier, for a period of 99 years from the date o occupation of the building, for a one-off payment of £990 upon completion of contracts, on the basis that each party would be responsible for its own legal costs arising from the transaction; and,

( i)  as recommended by the Environment and Public Services Committee, the annulment of the lease to CTS

Computing Limited of the Ground Floor offices at Broadcasting House, Rouge Bouillon, St.  Helier, presently subject to a lease for a period of four years from 25th March 2003 at an annual rent of £30,320, subject to payment by the tenant of one quarter's rental and any additional professional and managing agent's fees arising from the transaction.

Matters noted – acceptance of tender

THE STATES noted an Act of the Finance and Economics Committee dated 1st April 2004, showing that, in pursuance of Rule 5 of the Public Finances (General) (Jersey) Rules 1967, as amended, the Committee had noted that the Housing Committee had accepted the lowest tender received for the development of 96 residential units and associated facilities on the site of the former Le  Coie Hotel, St.  Saviour namely that submitted by A.C Mauger and Son (Sunwin) Limited in the sum of £12,798,318 for a contract period of 100 weeks.

Matters lodged

The following matters were lodged "au Greffe" –

Draft Drainage (Jersey) Law 200- (P.193/2003): amendments. P.193/2003. Presented by the Environment and Public Services Committee. Amd.

Draft Public Holidays and Bank Holidays (Jersey) Act 200-. P.56/2004. Presented by the Legislation Committee.

Equalisation of Welfare. P.57/2004. Presented by Deputy G.C.L. Baudains of St.  Clement.

Public Sector Re-organisation: Five Year Vision for the Public Sector. P.58/2004. Presented by the Policy and Resources Committee.

Shadow Scrutiny Panels: appointment of member. P.59/2004. Presented by the Privileges and Procedures Committee.

Draft Public Employees (Contributory Retirement Scheme) (Existing Members) P.60/2004. (Amendment No.  7) (Jersey) Regulations 200-.

Presented by the Policy and Resources Committee.

Draft  Public  Employees  (Contributory  Retirement  Scheme)  (New  Members) P.61/2004. (Amendment No.  9) (Jersey) Regulations 200-.

Presented by the Policy and Resources Committee.

Modernisation of Jersey's Gambling Legislation. P.62/2004. Presented by the Economic Development Committee.

Jersey Competition Regulatory Authority: appointment of member and Chairman. P.63/2004. Presented by the Economic Development Committee.

Draft Shops (Sunday Trading) (No.  8) (Jersey) Regulations 200-. P.64/2004. Presented by the Economic Development Committee.

Draft Shipping (Jersey) Law 2002 (Appointed Day) Act 200-. P.65/2004. Presented by the Harbours and Airport Committee.

Draft Shipping (Amendment) (Jersey) Law 2003 (Appointed Day) Act 200-. P.66/2004. Presented by the Harbours and Airport Committee.

States  Abattoir,  La  Route  du  Veulle,  La  Collette  St.  Helier:  transfer  of P.67/2004. administration.

Presented by the Harbours and Airport Committee.

Animal  Waste  Products  Site,  La  Rue  Phillippe  Durell,  La  Collette,St.  Helier: P.68/2004. transfer of administration.

Presented by the Presented by the Economic Development Committee.

Royal Court House/States Building: allocation of accommodation. P.69/2004. Presented by the Environment and Public Services Committee.

Draft Data Protection Law 200-. P.70/2004. Presented by the Finance and Economics Committee.

Draft Harbours (Amendment No.  37) (Jersey) Regulations 200-. P.71/2004. Presented by the Harbours and Airport Committee.

Draft Boats and Surf-Riding (Control) (Amendment No.  26) (Jersey) Regulations. P.72/2004. Presented by the Harbours and Airport Committee.

Draft Non-Contributory Pensions (Repeal) (Jersey) Law 200-. P.73/2004. Presented by the Employment and Social Security Committee.

Fields 519, 520, 521, 524, 527 and 528, Trinity – rescindment of planning permit. P.74/2004. Presented  by  Senator  P.V.F.  Le  Claire  and  referred  to  the  Health  and  Social

Services and Environment and Public Services Committees.

Draft Social Security (Amendment No.  17) (Jersey) Law 200-. P.75/2004. Presented by the Employment and Social Security Committee.

The following matter was lodged on 6th April 2004 –

Travelling and entertaining costs: provision of information. P.51/2004. Presented by Senator R.J. Shenton.

The following matters were lodged on 13th April 2004 –

Sale of properties. P.52/2004. Presented by the Housing Committee.

Draft Stamp Duties and Fees (No.  3) (Jersey) Regulations 200-. P.53/2004. Presented by the Finance and Economics Committee.

Elizabeth  Harbour  Phase  I  Warehouse:  lease  to  Commodore  Express  (Jersey) P.54/2004. Limited.

Presented by the Harbours and Airport Committee.

Draft Christmas Bonus (Amendment No.  2) (Jersey) Law 200-. P.55/2004. Presented by the Employment and Social Security Committee.

Arrangement of public business for the present meeting

THE STATES confirmed that the following matter lodged "au Greffe" would be considered at the present meeting –

Draft Milk (Sale to Special Classes) (Jersey) Regulations 200-. P.50/2004. Lodged: 30th March 2004.

Employment and Social Security Committee.

Arrangement of public business for the next meeting on 11th May 2004

THE STATES agreed that the following matter lodged "au Greffe" would be considered as the first item of public business at the next meeting on 11th May 2004 –

Draft Extradition (Jersey) Law 200-. P.39/2004. Lodged: 9th March 2004.

Policy and Resources Committee.

THE STATES confirmed that the following matters lodged "au Greffe" would be considered at the next meeting on 11th May 2004 –

Public Sector Housing: establishment of a management company. P.105/2003. Lodged: 8th July 2003, and referred to the Policy and Resources, Finance and

Economics, and Housing Committees.

Deputy A. Breckon of St.  Saviour.

Social Security Fund: a new method of funding. P.137/2003. Lodged: 7th October 2003.

Deputy G.P. Southern of St. Helier.

Social Security Fund: a new method of funding (P.137/2003) – comments. P.137/2003. Presented: 18th November 2003. Com. Employment and Social Security Committee.

Social Security Fund: a new method of funding (P.137/2003) – comments. P.137/2003. Presented: 10th February 2004. Com.(2) Finance and Economics Committee.

Draft The Law Society of Jersey Law 200-. P.154/2003.

Lodged: 11th November 2003. Legislation Committee.

States Members' Remuneration: increases for 2004 – rescindment. P.11/2004. Lodged: 27th January 2004.

Deputy T.J. Le  Main of St.  Helier.

States Members' Remuneration: increases for 2004 – rescindment (P.11/2004) – P.11/2004. comments. Com. Presented: 30th March 2004.

Privileges and Procedures Committee.

States Members' Remuneration: increases for 2004 – rescindment (P.11/2004) – P.11/2004. comments. Com.(2) Presented: 20th April 2004.

Finance and Economics Committee.

States Members' Remuneration: increases for 2004 – rescindment (P.11/2004) – P.11/2004. amendment. Amd. Lodged: 24th February 2004.

Senator J.A. Le  Maistre.

States Members' Remuneration: increases for 2004 – rescindment (P.11/2004) – P.11/2004. second amendment. Amd.(2) Lodged: 30th March 2004.

Senator R.J. Shenton.

Channel Islands Welding, La  Collette: permission for alterations to head lease. P.26/2004. Lodged: 17th February 2004.

Environment and Public Services Committee.

Fields 1282 and 1287, La  Fredée Lane, St.  Helier: extinguishment of restrictive P.48/2004. covenants.

Lodged: 30th March 2004.

Environment and Public Services Committee.

Former School, Clearview Street, St.  Helier: proposed sale. P.49/2004. Lodged: 30th March 2004. (re-issue) Environment and Public Services Committee.

Former School, Clearview Street, St.  Helier: proposed sale (P.49/2004) – P.49/2004. Com. comments.

Presented: 20th April 2004.

Health and Social Services Committee.

Travelling and entertaining costs: provision of information. P.51/2004. Lodged: 6th April 2004.

Senator R.J. Shenton.

Jersey Competition Regulatory Authority: appointment of member and Chairman. P.63/2004. Economic Development Committee.

Draft Shops (Sunday Trading) (No.  8) (Jersey) Regulations 200-. P.64/2004. Lodged: 20th April 2004.

Economic Development Committee.

Draft Shipping (Jersey) Law 2002 (Appointed Day) Act 200-. P.65/2004. Lodged: 20th April 2004.

Harbours and Airport Committee.

Draft Shipping (Amendment) (Jersey) Law 2003 (Appointed Day) Act 200-. P.66/2004. Lodged: 20th April 2004.

Harbours and Airport Committee.

Draft Harbours (Amendment No.  37) (Jersey) Regulations 200-. P.71/2004. Lodged: 20th April 2004.

Harbours and Airport Committee.

Draft Boats and Surf-Riding (Control) (Amendment No.  26) (Jersey) Regulations. P.72.2004. Lodged: 20th April 2004.

Harbours and Airport Committee.

Consideration of alternatives to the Sales Tax – questions and answers (Tape No.  907)

Senator Richard Joseph Shenton asked Senator Philip Francis Cyril Ozouf , Vice-President of the Finance and Economics Committee, the following questions –

"1 .  Would  the Vice-President inform the  Assembly whether the  Committee considered the  following

alternatives to Sales Tax and, if so, state why they were rejected?

(a ) W  ealth/Net worth tax as, for example, in France and part of the United States of America;

(b ) C apital Gains Tax as in most countries;

(c ) I nheritance/Estate Tax as, for example, in the United Kingdom and the United States of America; (d ) P ayroll Tax;

(e ) G ift Tax as, for example, in the United Kingdom and United States of America;

(f ) P ermanent Establishment Tax as, for example, in the United Kingdom;

(g ) S econd property tax;

(h ) D evelopment Tax as, for example, in Canada;

(i ) In creased registration charges for previously exempt companies;

(j ) R egistration charges for foreign incorporated but locally administered companies;

(k ) T rust registration charges;

(l ) W ork permit registration;

(m  )  Graduated rates of tax.

2 .  W  ould the Vice-President explain why the Committee considers that the preservation of the 20% rate of

income tax is so important if it now only applies to local residents, with wealthy persons able to negotiate alternative rates?

3 . W ould the Vice-President inform members whether the Committee has considered retaining personal tax

allowances at their present rate and introducing a higher rate of 35% for those with a net income over £80,000 as a fairer alternative to the Committee's proposals and, if not, why not?

4 . W ould the Vice-President confirm that the current proposals of his Committee concerning taxation

changes relate particularly to persons who are employed and do not affect those wealthy people who have planned their affairs to turn income into capital?

5 . H as the Committee considered how much tax would be raised by the introduction of higher rates of tax

together with a wealth/gift/inheritance/capital gains tax, together with a proposal to plug the gap for foreign owned trades, possibly with a permanent establishment tax or a payroll tax with credit, and if so, could he confirm whether these measures would be sufficient to reduce the projected deficit without doing undue harm to the majority of the population or significantly increasing the administrative burden?

6 . W ould the Committee agree to stop the draconian cuts in essential services which have been proposed as

part of the Fundamental Spending Review process and that are causing hurt and anxiety amongst the most vulnerable in our community?"

The Vice-President of the Finance and Economics Committee replied as follows –

" 1 . The Committee considered a number of alternatives to some form of a goods and services tax, and reviewed alternatives against a

number of tests –

F ir s tl y , a n y m easures had to be capable of generating significant revenues to help contribute to the

expected States deficit of up to £80-£100 million. In short, the Committee preferred a limited number of measures as opposed to a plethora of relatively low yielding measures.

S e c o n d ly , a n y new taxes must not harm Jersey's competitive position as a major offshore financial

centre.

T h ir d l y , th e Committee sought taxation options which minimise complexity and are appropriate for

a small island economy like Jersey. It must be recognised that simply duplicating the range of taxes used in larger jurisdictions could create an excessive legislative and bureaucratic burden.

F o u r th l y , a n y changes to the Island's fiscal structure must be acceptable to the international

community and unlikely to provoke retaliatory action that could harm Jersey's economy.

F in a lly, any new tax should not incur administrative costs disproportionate to their yield.

U n f o rt unately, many of the taxes outlined in the question, including those in (a), (b), (c), (e), (g), (h), (l)

and (m) do not meet one or more of the tests.

T h e C  ommittee will publish, in the very near future, comprehensive responses to the feedback received

throughout the consultation exercise, including in more detail, the reason for rejecting many of the alternative taxes.

F u rt h e rmore, as announced yesterday, the Committee has commissioned an independent review by pre-

eminent tax expert, Mr. John Whiting of Price waterhouseCoopers London. This review will cover the issues raised in Senator Syvret's Proposition P.41/2004 and give an independent opinion of the Committee's assessment of alternatives. This will provide States members with further evaluation of the Committee's proposals and the alternatives rejected.

N e v e r theless, I would like to address here certain of the more substantive alternatives raised by Senator

Shenton, starting with Capital Gains Tax (CGT) –

F ir s tl y , t h e C omptroller of Income Tax has estimated that if implemented in a similar manner to

the UK, CGT would only raise £5 million a year. It cannot therefore significantly reduce the projected deficit.

S e c o n d ly , w  hilst the Senator's question notes that many jurisdictions have adopted CGT, neither of

Jersey's principal financial services competitors, Guernsey and the Isle of Man, tax capital gains. The imposition of this tax would therefore risk making our financial services industry less competitive.

T h i rd l y , C G  T has a relatively high cost of collection and needs complex legislation, which can

become progressively detailed as avoidance takes place. The imposition of CGT would therefore be contrary to our tradition of seeking clear, straightforward taxation legislation in Jersey. The Committee feels that this policy has served us well for many years and should be continued.

T h e F  inance and Economics Committee has carefully considered Payroll Tax as an option in its current

fiscal proposals. As members know, the Committee has retained it as a last resort should the proposed goods and services tax, however finally defined, fail to realise the necessary revenue to close the projected fiscal deficit.

H o w e ver, as is made clear on Page 10 of our published document – Facing Up To The Future' – we

have identified several drawbacks to the introduction of a Payroll Tax which make it an inherently unattractive option.

W h e r e the tax liability falls on the Employer, this tax –

ra i s es th e c o st of doing business in Jersey;

is c o u n t e r- p r oductive in terms of encouraging economic growth;

m ak e s i t m  ore difficult to ensure that Jersey remains internationally competitive for financial

services businesses;

a ct s a s a s e v ere deterrent to job creation and retention. This has been the experience in the United

Kingdom in recent months with the announcement of the outsourcing of a significant number of jobs, which has been partly attributable to the recent rise in Employer National Insurance contributions.

W h e r e the tax liability falls on the Employee, the defects are that –

a p a y r o ll ta x imposed in this way only impacts on wage earners rather than on total earnings. It is

therefore somewhat inequitable;

s u c h a ta x w ould be inconsistent with the Committee's longer term strategy of reserving Social

Security contributions increases for addressing the problems generated by the Island's ageing population.

F o r th e se reasons the Committee remains of the view that Payroll Tax as an alternative to some form of a

goods and services tax is not the best way to proceed.

T h e c oncept of any Permanent Establishment Tax (e.g. corporate profits tax, withholding tax) is one

whereby the Group or organisation charged is recognised as having an identified place of business – involving property, locally employed persons and other signs of local establishment – within the jurisdiction which is seeking to raise the tax.

T h e U  .K. (and indeed Jersey) does recognise Permanent Establishment as a determinant to liability to tax

in certain specialist situations, such as property owned by non-residents. However, these are not comparable to the

general system that Jersey would require to make a success of such a proposal.

A P e r manent Establishment tax for all companies in Jersey – which is essentially a territorial basis of

taxation found in few international tax systems – has nevertheless been carefully considered by a specialist Group set up by the Finance and Economics Committee. This Group includes individuals with considerable private sector tax expertise.

It r e m  ains a possibility that this system could provide a partial answer to the fiscal shortfall we face if –

and it is a big if – the home country of incorporation of the company or Group concerned – which in our situation primarily means the United Kingdom – is prepared to accept that corporate taxes paid in Jersey under such a system can be offset against home country tax liabilities of the company or Group.

I f t h a t home country treatment cannot be obtained, then the corporate tax paid in Jersey will be an

additional cost to the company or Group arising from operating in Jersey. As our aim is to make business more, rather than less competitive, this outcome holds few attractions.

N e v e r theless, we are currently engaged in sensitive negotiations with the U.K. Treasury on this issue. It

should be noted though that even if the U.K. is prepared to grant the recognition of Permanent Establishment tax to which I have just referred as a unilateral matter, significant problems will still be faced with convincing EU partners that such an agreement complies with the EU Code of Conduct on Business Taxation rules. The U.K. has already indicated that in its view it does not and has not hitherto been prepared to discuss the matter further with other EU member states. It takes the view that such a system is simply another form of discrimination in favour of non-resident shareholders of companies. It was the elimination of the discrimination which was at the core of the EU Code of Conduct initiative in the first place.

T h i s proposal therefore faces a significant uphill battle if it is to be successfully pursued but the

Committee assures members that it will endeavour to keep them informed of progress as negotiations continue.

It i s c l early unacceptable to lose the current fees' received from Jersey's Exempt Companies sources as

these amount to approximately £12 million per annum at present. However, some recovery of these monies has already been assumed in arriving at the figure of the £80-100 million shortfall we are seeking to address.

T h e m odifications required to Jersey's fiscal structure mean that it will not be possible in the future to

have different fee levels for exempt and income tax paying companies. The recovery of this £12 million will therefore depend on setting a one size fits all, single rate for all Jersey companies.

B y w a y of an example, if the core annual return fee proposal for Jersey companies was to be raised from

the current £150 per annum to around £400-£450, then this could recoup most of the £12 million I have just referred to as this rate would also include companies currently exempt. It would however represent an increased cost of around £250-£300 on those local companies.

M e m  b ers will notice that this does not raise any additional monies. To achieve that, the harmonised fee

level would need to rise significantly above £600 per annum for ALL companies. There are competitive limits on how high this fee can go before the Jersey financial services sector becomes internationally disadvantaged.

E s se n t ially then, finding a solution to recoup lost revenues as a consequence of the abolition of exempt

companies will be something of a balancing act. For competitive reasons the Committee feels it is not possible to raise any significant additional sums from this source. The best we can do is get back most of what the Island stands to lose from the loss of exempt company status and that Committee has already assumed that recovery in its estimation of the £80-100 million shortfall.

S e n a to r Shenton raises the issue of charging registration fees for companies incorporated by foreign

investors from foreign jurisdictions, such as for example the British Virgin Islands, but which are administered on behalf of those investors by Jersey based institutions.

T h e q uestion of extending a registration fee at some level to such companies is also currently being

considered. However, naturally here the competitive situation must also be carefully taken into account. There could be significant migration of these entities from Jersey to be administered elsewhere should we begin to impose a cost which another jurisdiction is prepared to waive. The loss of business and associated employment activity would of course be damaging to the Committee's proposition to grow the Island's economy.

W  e re a registration charge to be feasible then it would require a low fee level. A modest fee of around

£100 per company per year might raise around £7-8 million. This is not in itself a major contribution towards reducing the overall fiscal shortfall identified, although the Committee remains open minded about all measures which could practically reduce the amount required. The Committee has not ruled out this measure entirely, however, considering the competitive risks identified it feels it would be unwise to rely on any contribution from this source.

T r u st registration charges equate to a tax on the capital of foreign sourced business at the heart of the

Island's finance industry.

T h e C ommittee has severe reservations about this proposition since no other major financial centre

proposes to impose trust registration charges. Jersey is viewed internationally as a major, if not pre- eminent, Trust services provider; when considering this option the Committee concluded that trust registration charges would diminish the Island's share of this key market.

L o s in g market share in any industry inevitably translates into less business, less jobs and ultimately less

taxes, which then poses a repeat cycle of questions about how to fund essential services through taxation but this time from a smaller economy.

T h e C ommittee always sought solutions to the proposed deficit based upon the premise that the more

competitive Jersey's businesses can become, the more there will be benefits for the population as a whole because taxation can be kept to a minimum.

T h is a nswer I hope shows that alternatives have been and continue to be considered by the Committee.

The Committee welcomes alternative ideas but remains of the view that the arguments in favour of some form of goods and services tax are persuasive when compared to the relative merits of most of the alternatives. As most jurisdictions already have some form of a goods and services tax this is perhaps not an unsurprising conclusion.

2 .  2 0 per cent has been the standard rate of income tax in Jersey for over 60 years, contributing to what is

internationally recognised as a very stable fiscal regime. This recognition contributes to Jersey's appeal as a finance centre. The rate has therefore served the Island well in the past and there is no reason to suppose that it will not serve us well in the future as far as personal taxpayers are concerned.

T h e C  ommittee's proposal to phase out allowances for high earners is a very effective way of increasing

the amount of tax paid by those taxpayers, whilst maintaining that 20 per cent rate.

T h e a nswer the President gave on Tuesday 30th March 2004 to a question asked by Deputy Southern

illustrates how this will work. In the example used then, the married couple on an income of £150,000 would see their effective rate of tax rise from a current average of 13.9 per cent to an effective rate of tax of 19 per cent.

It is th e Committee's view that increasing the tax paid by high earners using this method is much more preferable than raising the standard rate of tax above 20 per cent, particularly when some of our main competitors, such as the Isle of Man, have already announced a reduction in direct rates of tax on their

residents.

T h e o n ly wealthy persons who are able to negotiate how much tax they pay are non-residents who wish

to become resident in Jersey by virtue of Regulation  1(1)(k) of the Housing Law. That Regulation was approved by the States in 1970 and still exists. As long as it does, any wealthy non-resident who wishes to take up residence in Jersey is able to make a specific application to the Housing Committee who will consider whether consent can be justified on social or economic grounds. It is a condition that a 1(1)(k) resident who takes up residence on economic grounds must pay an agreed amount of tax every year.

T h i s d oes not equate to an alternative rate of tax applicable to 1(1)(k) residents as supposed in the

question. The Notice of Assessment issued by the Comptroller of Income Tax, either to the individual personally, or to the company they beneficially own, or the trust in which they have an interest and which makes the tax contribution on his behalf, is still charged at the standard rate of 20 per cent to collect the amount of tax contribution agreed for each year.

T h o s e 1(1)(k) residents already in Jersey paid a total of £10.7 million in tax in 2002. It may well be that

we should be encouraging more 1(1)(k) residents to Jersey as a means of contributing to the deficit we face and thereby keeping down the tax increases for other islanders.

3 .  T he Committee considered a large number of variations of introducing higher rates of income tax for

those with higher incomes. We sought to achieve a level of greater tax contribution from wealthy residents, which would not ultimately be counter-productive by causing this highly mobile segment of the population to move to jurisdictions with a lower tax burden.

If a h ig her rate of income tax was levied on taxable household income over £80,000 it would be likely to

raise slightly more than £1 million per annum per one per cent point increase above 20 per cent. So rate of 35 per cent might potentially yield somewhere in the order of£16 million to£17 million.

H o w e ver, at this rate of 35 per cent, the highest income households in the Island could save

considerable amount of tax by moving to a lower tax rate jurisdiction like the Isle of Man. Excluding 1 (1)(k) residents, the households in Jersey with incomes above £500,000 per annum will see their total tax bills rise in total by over £6.5 million per annum, varying from a rise of around£60,000 to more than £150,000 each. If only one in five of taxpayers whose increase was over £120,000 decided to move, the total reduction in income tax paid would be in the order of more than £2 million, rather than any increase.

If a ll o f the top 10 tax paying households moved, the reduction in income tax would be in the order of

£4  million per annum. Even on these assumptions as to how an increase in tax rates from 20  per  cent t 35  per  cent might influence behaviour, there is a significant reduction in the net tax increase and th proposal could become counter-productive.

In a d d ition to the reduction in tax revenues, emigration of this sort would be likely to cause a reduction in

on-Island expenditure and other economic activities, so there would be additional knock-on effects in the economy.

T h e C  ommittee takes the view that at a top rate of even 30  per  cent, let alone 35  per  cent, there is a re

risk that a significant amount of taxable income would leave the Island. It is almost impossible to accurately estimate such a risk, but nonetheless the judgement of the Committee is that the risk is real and should be taken into account. The Committee believes that under its proposals the risk of income leaving the Island is minimal as the headline top rate of income tax remains at 20  per  cent.

In a d d ition, this 35  per  cent top rate above£80,000 would not by itself be anywhere near sufficient to

meet the challenge of moving to 0 per cent/10 per cent, so additional significant tax increases would st be necessary. If these were also aimed at those with incomes above £80,000 this would further increase the risk of income flight'.

4 . I cannot confirm  that the  current proposals of the Committee  concerning taxation changes relate

particularly to persons who are employed. The '20 per cent means 20 per ce'nptroposal, for example, will affect all Jersey resident taxpayers, not just employed persons, although 1(1)(k) residents who have agreed a specific tax contribution by virtue of Regulation 1(1)(k) of the Housing Law will not be directly affected. The proposed indirect tax on consumption will also affect all Jersey residents, including 1(1)(k) residents, so, once again, it is not just employed persons who are affected. Even the Income Tax Instalment Scheme being proposed is not targeted exclusively at employed persons, because subcontractors, who are self employed, will also be affected.

A s f o r those people, including incidentally employed persons as well as those who may loosely be

termed as wealthy, who attempt to plan their affairs to turn income into capital, the Comptroller of Income Tax has a general anti-avoidance provision in the Income Tax Law, Article  134A, which he has used to good effect when ruling in over 150  cases in the last six months.

M  a n y of those cases related to taxpayers attempting to transfer income-producing assets into those

producing a capital return. The Comptroller has invoked Article  134A to counteract such transactions, either wholly or partly. He has also formally invoked that Article in other cases, for example, in a property development case where the taxpayer is arguing that no taxable profits arise in Jersey.

A s th e Senator will have noted from the President's reply to a question asked by Deputy Southern on

Tuesday 30th March 2004, it may well be that the Committee will propose amendments to Article 134A or, alternatively, introduce new legislation, to strengthen the powers of the Comptroller to combat tax avoidance.

5 . B ecause of the inherent uncertainties surrounding many of these proposals, including their feasibility

and international acceptability, it is impossible to quantify precisely the additional tax revenues they would generate, however, it is clearly the case that they would not generate the £80-100 million needed, and some, likely to damage the economy, would actually lead to a reduction in tax revenues.

A s I h ave indicated, Permanent Establishment tax of the sort postulated here is theoretically possible but

unlikely to be achievable in agreement with foreign governments, particularly the U.K., for the reasons I have given. The Committee has not given up but it would be irresponsible to put that solution forward as a definite proposal when the Committee's proposition is debated.

W e re it to be achieved, it is possible that some or most of the £25 million identified asleakage' to

foreign governments as a consequence of foreign owned businesses moving to a zero tax platform could be recouped. This would nevertheless still leave a significant amount of the total shortfall to be addressed.

I h a v e already given an answer on the viability or otherwise of a Payroll Tax and its inherent defects. I

should re-iterate that despite these drawbacks it has not been ruled out completely but remains a solution of last resort in the event that a sales tax does not raise the sums we need.

In th i s specific context, a Payroll Tax paid by companies with credit for any corporation taxes paid seems