Ratification of the Agreement for the Exchange of Information with Respect to Taxes between the States of Jersey and the Government of Australia.

STATES OF JERSEY

RATIFICATION OF THE AGREEMENT FOR THE EXCHANGE OF INFORMATION WITH RESPECT TO TAXES BETWEEN THE STATES OF JERSEY AND THE GOVERNMENT OF AUSTRALIA

Lodged au Greffe on 1st October 2009 by the Chief Minister

STATES GREFFE

2009   Price code: C  P.160

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to ratify the agreement for the exchange of information with respect to taxes between the States of Jersey and Australia as set out in the Appendix to the report of the Chief Minister dated 5th August 2009.

CHIEF MINISTER

REPORT

Agreement to be entered into with Australia for the exchange of information with respect to taxes

1. The States are asked to ratify the signed agreement to be entered into with Australia for the exchange of information with respect to taxes attached as an appendix to this report.

Background

2. In February 2002 Jersey entered into a political commitment to support the OECD's tax initiative on transparency and information exchange through the negotiation of tax information exchange agreements with each of the OECD Member States.
3. The  Council  of  Ministers  current  negotiating  strategy  in  respect  of  tax information exchange agreements is –

• to build up good political and economic relationships with individual countries, particularly those in the European Union;

• to obtain general support for the Island where matters affecting the Island are being considered within international fora;

• to obtain the removal of key barriers to market access, such as black lists;

• to recognise that all the Island's wishes may not be achieved at the outset,  and  establish  a  platform  from  which  to  build  in  securing further benefits in the future;

• to press for action to be taken by the OECD Member States against the non-committed/non-cooperative jurisdictions who may otherwise be gaining advantage from that position.

4. The Council of Ministers have also seen the negotiation of tax information exchange agreements as one of balance between –

• the impact on business arising from the perception that Jersey is ahead of its competitors on transparency;

• the  impact  on  business  of  negative  action  taken  by  OECD/EU Member States against non-cooperative jurisdictions, if they should decide that Jersey is in that category;

• the impact on business of the positive action taken by OECD/EU Member  States  when  they  recognise  Jersey  as  a  cooperative jurisdiction.

5. The  action  the  Island  has  taken  in  signing  tax  information  exchange agreements has been recognised by the international community. On October 21st 2008 at a Conference on the Fight against International Tax Evasion and Avoidance:  Improving  Transparency  and  Stepping  Up  the  Exchange  of Information  on  Tax  Matters,  held  in  Paris,  the  Secretary  General  of  the OECD, commented favourably on the action taken by Jersey in negotiating tax information exchange agreements and stated that what is now required is "a clear political recognition being given to those offshore financial centres

that  have  made  progress".  In  the  Summary  of  Conclusions  of  the  Paris Conference it is stated that the participating countries "recognise the efforts made by certain jurisdictions [such as Jersey] that have set out a new direction for  their  financial  centres  and  have  signed  tax  information  exchange agreements, which constitute effective instruments of fighting international tax fraud and evasion.

6. Jeffrey  Owens,  the  Head  of  the  OECD  Centre  for  Tax  Policy  and Administration,  said  at  the  signing  of  the  tax  information  exchange agreements with the Nordic countries in Helsinki on 28th October that "we at the  OECD  recognise  the  importance  of  the  progress  Jersey  has  made  in signing  TIEAs,  and  in  receiving  clear  political  endorsement  from  OECD member countries. To show that the choice Jersey has made is the right one we  recognise  the  need  for  firm  action  to  be  taken  with  regard  to  those jurisdictions that are not showing the same commitment to tax information exchange". The G20 Summit in Washington held on 15th November 2008 also issued a declaration which called upon national and regional authorities to implement national and international measures and protect the global financial system from uncooperative and non-transparent jurisdictions that pose risks of illicit financial activity.
7. These  sentiments  were  then  clearly  reflected  in  the  outcome  of the  G20 Summit held in London on 2nd April 2009. In particular the list of countries published by the OECD in the form of a progress report on the jurisdictions surveyed by the OECD Global Forum in implementing the internationally agreed tax standards. Jersey was included in the list of jurisdictions that have substantially implemented the internationally agreed tax standard – what has become known as the "white list" – in which Jersey sits alongside the United Kingdom, the United States, Germany, France, Japan etc.
8. The importance of achieving this result is evident from the G20 Summit declaration on strengthening the financial system issued on 2nd April 2009 which states "we stand ready to take agreed action against those jurisdictions which do not meet international standards in relation to tax transparency. To this end we have agreed to develop a tool box of effective counter measures for countries to consider."
9. The G20 Summit welcomed the new commitments made by a number of jurisdictions such as Switzerland and encouraged them to proceed swiftly with implementation. The view was also held that if there is not genuine progress in  agreeing,  implementing  and  abiding  by  the  necessary  international agreements, particularly among those jurisdictions that have only just declared their commitment to international standards, the G20 should be encouraged to take the necessary action to ensure that all abide by the high standards and the level playing field that Jersey has long pressed for is achieved. This view is fully supported by the Council of Ministers.

Procedure for Signing and Ratifying the TIEAs

10. The procedure adopted in respect of individual agreements is for industry to be consulted and for the views of industry to be taken into account by the Council of Ministers in deciding whether to support the signing of a tax

information exchange agreement. If the Council of Ministers decide that it would be in the Island's best interests for an agreement to be signed, both parties to the agreement then exchange signed agreements which allows both to  start  their  ratification  procedures  contemporaneously.  Agreements  are signed  by  the  Chief  Minister  in  accordance  with  the  provisions  of Article 18(2) of the States of Jersey Law 2005 and paragraph 1.8.5 of the Strategic  Plan  2006–2011  adopted  by  the  States  on  28th  June  2006. Subsequent to the signing by the Chief Minister, agreements are presented to the States for ratification, are published, entered into the official record and regulations are made for the agreements to enter into force when the domestic procedures of the other party also have been completed.

11. The  States  on  29th  January  2008  adopted  the  Taxation  (Exchange  of Information with Third Countries) (Jersey) (Regulations) 2008. The Schedule to these Regulations lists the Third Countries, and includes the taxes covered by the Agreements being entered into. As further agreements are entered into, the Regulations need to be amended to include in the Schedule the jurisdiction and taxes concerned. The necessary Regulations to provide for the inclusion in the Schedule of Australia and the relevant taxes are being presented to the States for adoption subsequent to the ratification of the Agreement for the exchange  of  information  relating  to  tax  matters  being  entered  into  with Australia (see P.162/2009).
12. An Agreement does not come into force until both of the parties concerned have completed their own domestic procedures. The date when an agreement is  to  come  into  force  is  then  included  in  the  Schedule  attached  to  the Regulations.

Agreement with Australia

13. The  negotiations  with  Australia  produced  agreement  on  the  following, attached as an Appendix to this report –

1. A tax information exchange agreement which is consistent with the agreements signed previously with other countries.

The  Agreement  provides  for  the  exchange  of  information  on  tax matters on request. However that request has to be formulated in writing  in  the  greatest  detail  possible.  There  can  be  no  "fishing expeditions". The agreement only comes into force once the States have  ratified  it  and  have  approved  the  necessary  regulations,  and Australia has completed its own domestic procedures;

2. An agreement for the allocation of taxing rights with respect to certain income of individuals and to establish a mutual agreement procedure in respect to transfer pricing adjustments.
3. A joint declaration which among other things –

• recognises each country's commitment to operate financial regulatory  systems  that  meet  the  highest  international

standards  in  order  to  combat  money  laundering,  terrorist financing and other financial and fiscal crimes;

• welcomes Jersey as a member of the community of nations committed  to  international  cooperation  and  information exchange  on  tax  matters,  and  affirms  that  Jersey  will  be treated accordingly by the Australian authorities;

• provides that following the entry into force of the agreements, Australia and Jersey will continue to examine what measures could  be  adopted  to  further  enhance  their  political  and economic relationship, including the further clarification of elements  of  double  taxation,  discrimination  and  other undesired tax barriers.

4. In addition to the foregoing, Australia will remove any governmental references to Jersey as a tax haven and, following entry into force of the TIEA, will move to list Jersey as an information exchange country in the Taxation Administration Regulations. This will provide Jersey residents with access to reduced withholding tax rates on distributions of  certain  income  they  may  receive  from  Australian  managed investment trusts.

14. The negotiation of the agreements has helped to establish a good relationship with  Australia  and  has  helped  their  understanding  of  and  has  influenced favourably their attitude towards the Island. The agreement is considered to enhance the Island's international personality and generally to lead to a more favourable response to the Island on a wide range of market access and other economic/political  issues.  There  are  no  implications  for  the  financial  or manpower  resources  of  the  States  arising  from  the  ratification  and implementation of the agreements with Australia.

5th August 2009

APPENDIX