Ministerial Response - Draft Revenue Administration (Jersey) Law 201- - 9 April 2019

Findings

Comments

1

Stakeholders agreed that Jersey's current tax law is no longer fit for purpose, and that the draft law reforms the administrative elements. Article 2 of the draft Law establishes a Comptroller of Revenue in place of the existing Comptroller of Taxes. The rationale for this is explained in the introductory report on page 4 of P.122/2018.

The  Minister  agrees  that  much  of  the  Income  Tax (Jersey) Law 1961 (the "ITL") is in need of review; those sentiments were echoed in the opening lines of her speech to the Assembly when she presented the principles of the draft Law. The ITL dates from 1961, and –  while  much  of  it  has  been  amended  and augmented through annual Finance Laws – some of the provisions bear a resemblance to its predecessor from 1928.

Over the years, extra provisions have been added to the ITL. While some sections are new, others are in need of review and reform. The Tax Policy Unit regularly has  to  reprioritise  its  workload –  for  example, responding  to  demands  from  the  international community  (such  as  the  EU  Code  Group's requirements  for  economic  substance  rules)  and  the demands of the Assembly, so it is understandable that some  stakeholders  are  frustrated  that  reform  of  the parts  of  the  ITL  that  affect  them  have  not  been prioritised.

Given the scale of the task, it will always be necessary to modernise tax law in stages. The administrative legal changes have been prioritised because the States voted to  allocate  significant  funds  to  the  revenue transformation programme to enable the provision of new systems. A timeline for other key modernisation provisions,  not  related  to  the  draft  Law,  has  been provided to the Panel.

2

The first tranche of the draft Law prepares the way for online filing of tax returns in 2020.

The  Panel's  finding  is  correct.  For  example,  when taxpayers file online, Revenue Jersey will no longer ordinarily require taxpayers to submit documentation in support  of  their  return  (e.g. mortgage  interest certificates). Instead, taxpayers will be required to keep records in support of their return, so that they can be made available for a tax enquiry, if required.

The new computer system will allow Revenue Jersey to move  away  from  heavily  manual  processes,  where every return is examined, to a risk-based process. This means some lower-risk tax returns will pass through the system without being inspected by a tax officer.

The draft Law puts in place some of the key elements of  this  approach  (e.g.  civil  penalties  for  inaccurate returns; interest for late payment), to ensure that the Comptroller has the ability to deal with the minority of taxpayers  who  choose  not  to  comply  with  their  tax obligations.

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3

The current tax laws are expected to be gradually replaced, beginning with the discussed draft Law. An Income Tax Law, a G.S.T. (Goods and Services Tax) Law, and a Stamp Duty Law are also expected, alongside the second tranche of the draft Law.

As mentioned above, the Tax Policy Unit has regularly to reprioritise its workload. The  draft Law is a key piece of legislation that forms one part of the RTP, and that is why the Minister has lodged the first tranche now (online filing is on schedule to be switched on with effect from 1st January 2020).

Aspects  of  the  ITL  have  already  been  replaced (e.g. Part 19 relating to pensions and pension schemes was  completely  rewritten  in  the  Income  Tax (Amendment No. 44) (Jersey) Law 2014), and further

aspects will be modernised, with the initial focus being on the taxation of married women, interest relief rules, and rules to determine the tax residence of individuals.

For  the  avoidance  of  doubt,  the  Minister  does  not expect Revenue Jersey to undertake a major overhaul of  the  Goods  and  Services  Tax  (Jersey)  Law 2007, considering  the  legislation  is  relatively  new;  in  the consultation on stamp duty on enveloped properties, a broad  question  has  been  asked  regarding  how  the Stamp Duties and Fees (Jersey) Law 1998 could be

improved.

4

Stakeholders have raised concerns with the piecemeal' progress on tax reform, as well as the lack of protections for taxpayers, and past reforms to the tax system have been promised, but not delivered.

The  Minister  is  disappointed  that  the  Panel  has characterised  this  phased  approach  to  introducing changes to the tax legislation as piecemeal'. Simply put, the Government does not have the resources to amend  the  entire  tax  legislation  in  one  go,  and  the Minister is not persuaded that either the stakeholder community or the States Assembly could cope with the volume  of  work  implied  by  not  adopting  a  phased approach. Furthermore, the Minister believes that it is important that key matters are addressed in the short term, rather than bringing no tax changes to the States Assembly  for,  say,  3 years,  and  then  seeking  to introduce  a  whole  new  ITL.  The  Minister  does  not believe that this is the approach that States Members would want the Treasury to take.

Revenue Jersey has engaged with representatives of the tax  agent  community  this  year,  in  order  to  address some of their longstanding concerns with some of the technical tax provisions. That work will continue, and in this respect a timeline has been provided to the Panel and to tax agents.

5

Stakeholders consulted during the review expressed concern about the Commissioners of Appeals' potential lack of independence and the lack of transparency when making judgements. This is expected to be

The Minister notes that no real corroborating evidence has been adduced to support the view expressed by one or two tax agents that the Commissioners of Appeal lack independence or impartiality. She does, however, agree  that  some  of  the  decisions  made  by  the Commissioners should be published where they have

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dealt with through a second tranche of the Revenue Administration Law later in the year.

value  as  precedent  and,  if  legislation  is  required  to allow that, she will propose a new Article in the next tranche of the RTP.

It should be noted that the Commissioners will in any case be replaced by other arrangements recommended by the Jersey Law Commission and supported by the Government.

6

The draft Law introduces civil penalties for "careless" or "deliberate" errors in tax returns. Stakeholders believe that these terms will require published general definitions to grant the taxpayer certainty on their position.

Revenue  Jersey  is  well-advanced  in  the  process  of developing  detailed  guidance  on  civil  penalties  for "careless"  or  "deliberate"  errors  in  tax  returns. A discussion  on  this  guidance  will  take  place  with stakeholders before lodging the second tranche of the RTP.

7

Articles 17–19 of the draft Law allow the Minister to set the rates of interest for the late payment of tax and overpayments of tax by Ministerial Order. Stakeholders have raised concerns that a lack of oversight could lead to a significant difference between the two rates.

The  Minister  has  accepted  the  Panel's  three

amendments on the issue of interest rates so that the

States Assembly will have greater oversight of the rates ultimately introduced.

8

The evidence we received highlighted that production powers to settle ongoing tax enquiries have been used with increasing frequency. Article 26 of the draft Law would make it easier to access these powers. Stakeholders are concerned about the lack of a taxpayers' right of appeal for these "fishing" expeditions.

The Minister is surprised that the Panel does not share her concern with how infrequently these powers have been used in the past. For context, the Comptroller has used all of the production powers available to him only 9 times in the last 4 years. Together, their use involves potential additional revenues of over £4 million in tax (excluding any penalties). Many of the enquiries are ongoing exactly because taxpayers are slow to engage with the revenue department.

Most production powers are currently contained in the main tax Laws relating to Income Tax and GST. The powers will be reviewed for the next tranche of the RTP in the expectation of making more of them subject to  civil  penalties  for  default  (like  the  proposed Article 26). They are generally used against individuals and businesses where they refuse to co-operate with a tax  enquiry:  and  they  are  used  as  the  "last  resort" before bringing the matter before the judiciary.

The Minister considers that the concerns expressed to the  Panel  represent  a  minority  view  from  a  small number of tax agents; and notes that no similar concern was  expressed  by  others  providing  evidence  to  the Panel,  in  particular  the  Chartered  Institute  of Taxation – who represent many of the Island's agents.

When conducting tax investigations and enquiries, the vast  majority  of  information  requested  by  the

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Comptroller  is  provided  voluntarily  by  taxpayers following a request by letter. Where taxpayers do not co-operate with an enquiry or investigation – and do not provide a reasonable excuse for not co-operating – it is essential that the Comptroller has sufficient powers to  force  the  production  of  records  and  information. Everyone must pay their fair share of taxes.

Existing production powers can, of course, already be appealed by way of Judicial Review and – where the Assembly  supports  the  creation  of  new  production powers  with  civil  penalties  rather  than  criminal sanctions – the penalty itself can be appealed before the Commissioners  of  Appeal,  which  will  be  less cumbersome for taxpayers, as well as Revenue Jersey.

With reference to so-called "fishing expeditions", that term  is  usually  taken  to  mean  an  "indiscriminate request for production of information in the hope of uncovering helpful information". Tax administrations generally  avoid  such  approaches –  while  reserving always  their  right  to  conduct  random  compliance enquiries.  The  basic  fact  of  the  matter  is  that  tax enquiries  can  be  opened  for  purely  compliance purposes – to establish that individuals and businesses have  correctly returned  their income, and  this  is an important  check  on  the  tax  system.  But  the  vast majority of tax compliance checks are not random: they explore perceived or proven risks of tax leakage and/or available  intelligence;  and  the  reality  is  that  the Comptroller  simply  does  not  open  speculative  tax enquiries.

9

The Panel has received evidence that the Minister for Treasury and Resources will not be proposing Article 26 at this time, pending further consultation.

The  Minister  decided  not  to  propose  Article 26, knowing that the second tranche of the RTP would be examining  formal  production  powers  more  broadly. The  key  question  for  the  Panel  to  address  (in preparation for this next stage of scrutiny) is just how much time they consider it is reasonable to allow a taxpayer to produce records and information when the Comptroller  wishes  to  verify  a  tax  declaration  or establish whether a tax liability exists. Depending on the scope and complexity of what is being requested from  the  taxpayer,  the  Comptroller  currently  allows 60 days as a bare minimum.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

The Minister for Treasury and Resources should publish a clear timeline for implementing both the second tranche of the Revenue Administration Law and the ongoing reform of personal tax.

T&R

Accept

A timeline has been provided to the CSSP, and is included as an Annex to the addendum to the report presented alongside the original draft legislation.

Done

2

We considered lodging an amendment to introduce the statutory enquiry window, however we understand that the Minister is willing to prioritise this piece of work and bring forward proposals with the Government Plan in due course. We recommend that the Minister prioritises this work and we will hold the Minister to account in delivering this commitment.

T&R

Accept

Shortening the period within which additional assessments can be raised is one of the issues for discussion between Revenue Jersey and the tax agent community at forthcoming meetings.

Regardless of the outcome of those discussions, the Minister is committed to reducing the current 5 year time period set out in Article 24 of the ITL.

Consult- ation in Q2 2019

Draft legislation later in 2019

3

The Comptroller has told us that guidance is being prepared and will be published in the third quarter of 2019. We recommend that the Minister prioritises the publication of this guidance.

T&R

Accept

Guidance is currently in draft format, and it will be shared with stakeholders for comment before it is published.

Q2 2019

4

We consider that a requirement for interest rates on under- and over-paid tax, to be set by Regulations, will provide additional oversight for the Assembly on the rates being proposed. It will also ensure that the Assembly can challenge any rates proposed by the Minister that are excessive or result in a significant differential between the rates for late paid tax and overpaid tax.

T&R

Accept

The Minister has accepted the CSSP's amendments on this matter, and expects to bring forward Regulations in due course.

Regs. to follow enactment of the draft Law

5

Whilst we acknowledge the rationale provided by the Comptroller for the use of production powers, we consider that a right of appeal for the powers contained in the

T&R

Reject

The provision as drafted did – being a civil procedure – allow for appeal of penalty

Consult- ation on information powers in

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

draft Law would provide some balance to the law and protection for taxpayers. We have therefore lodged an amendment to the draft Law to introduce an appeal process which mirrors the existing appeal process in operation.

before the Commissioners of Appeal.

The Minister considers a second appeal provision against the same matter (i.e. failure to produce records) to be excessive, allowing an unco-operative taxpayer over 120 days to frustrate a tax investigation before facing judicial penalties.

For that reason, and because the information production powers are going to be subject to review in 2019, the Minister has decided not to propose the relevant Article of the draft Law.

Q2 2019

Draft legislation later in 2019