Ratification of the Agreement for the exchange of information relating to tax matters between the States of Jersey and the United Kingdom.

STATES OF JERSEY

RATIFICATION OF THE AGREEMENT FOR THE EXCHANGE OF INFORMATION RELATING TO TAX MATTERS BETWEEN THE STATES OF JERSEY AND THE UNITED KINGDOM

Lodged au Greffe on 3rd June 2009 by the Chief Minister

STATES GREFFE

2009   Price code: C  P.96

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to ratify the agreement for the exchange of information relating to tax matters between  the  States  of  Jersey  and  the  United  Kingdom  as  set  out  in  the Appendix to the Report of the Chief Minister dated 28th April 2009.

CHIEF MINISTER

REPORT

RATIFICATION OF THE AGREEMENT FOR THE EXCHANGE OF INFORMATION RELATING TO TAX MATTERS BETWEEN THE STATES OF JERSEY AND THE UNITED KINGDOM

1. The States are asked to ratify the signed agreement to be entered into with the United  Kingdom  for  the  exchange  of  information  relating  to  tax  matters 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 to 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 21st October 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 unco-operative 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  the  United  Kingdom  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 the United Kingdom (see P.97/2008).
12. The Agreements do 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 included in a forthcoming Schedule attached to the Regulations.

Agreement with the United Kingdom

13. The negotiations with the United Kingdom produced an 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 such as the United States of America in 2002, the Kingdom of the Netherlands in 2007, the Federal Republic of Germany in 2008 and the Nordic Countries in 2008.

The  agreement  provides  for  the  exchange  of  information  on  tax matters on request. However, that request has to be formulated in writing with the greatest detail as 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 the United Kingdom has completed its own domestic procedures.

2. An arrangement amending the 1952 arrangement between the two governments for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

This provides, among other things, that pensions and other similar remuneration  paid  to  an  individual  who  is  resident  of  one  of  the territories shall be taxable only in that territory.

3. A memorandum of understanding that sets out the arrangements for the allocation of costs.
4. An exchange of letters that, among other things –

• provides that in the event that either party to the agreement applies prejudicial restrictive measures based on harmful tax practices  to  residents  or  citizens  of  the  other  party,  it  is understood that that other party may suspend the operation of the agreement for so long as such measures apply;

• recognises  that  the  United  Kingdom  and  Jersey  share  a common commitment to comply with international standards of  anti-money  laundering  and  counter-terrorist  financing legislation  and  financial  regulation,  and  to  participate  in international  efforts  to  combat  financial  and  other  crimes including fiscal crime;

• provides that the UK will use its best endeavours to ensure that where EU Directives for Regulations include provisions referring to the position of Third Countries, particularly in relation to access to markets, Jersey is treated as fairly as other Third Countries;

• recognises  Jersey  as  a  member  of  the  community  of jurisdictions  committed  to  international  cooperation  and information exchange on tax matters and wishes to assure the States of Jersey that Jersey will be treated as such by the United  Kingdom  authorities.  The  United  Kingdom  also recognises  the  States  of  Jersey's  commitment  to  a  "good neighbour" policy.

14. The negotiation of the agreements has helped to establish a good relationship with the United Kingdom, 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. Implementation of the UK TIEA and other TIEAs, which now total 13, is dependent upon the Council of Ministers and States prioritising a request for additional resources of £100,000 and associated manpower for the Income Tax Office in the Strategic Plan and Business Plan processes for 2010.

28th April 2009

APPENDIX