Submission - Revenue Administration Law - Comptroller of Taxes - 5th February 2019

States Treasury and Exchequer  

Comptroller of Taxes  

P.O. Box 56   St. Helier  JERSEY  

JE4 8PF

Telephone: +44 (0)1534 440300 Fax:   +44 (0)1534 789142

5 February 2019

Simon Spottiswoode Esq Corporate Services Scrutiny Panel States Greffe: Scrutiny

Morier House

St Helier JE1 1DD

DRAFT REVENUE ADMINISTRATION (JERSEY) LAW: FURTHER INFORMATION

Further to your email of 31 January, here is the additional information which you requested.

Question 1: Article 26 – the power to request records is wide ranging. Why is this necessary, rather than, for example, being limited to where careless or deliberate error is suspected?

2. Article 26 is a "production power". Such powers are only used where earlier requests for information have been ignored by the taxpayer during the course of a compliance check.
3. The behaviour exhibited by a taxpayer can be difficult to establish until one has examined all of the available information to determine whether that behaviour was reasonable, careless or deliberate.
4. Where a taxpayer has steadfastly declined to produce records without providing a reasonable excuse for not doing so, a power of this magnitude is the usual way to elicit co-operation or – failing co-operation – to bring the matter before a judicial body. (It should be noted that, if a taxpayer has been persistently un-cooperative, that may often serve asan early indicator of potential wrongdoing.)

5. The production power in Article 26 relies upon civil penalties – not criminal – and includes judicial oversight by way of appeal to the independent Commissioners of Appeal as opposed to being by way of a criminal trial. This is particularly appropriate given the population of taxpayers affected by Part 6.
6. Part 6 (Articles 22 to 28) of the Draft Revenue Administration (Jersey) Law (the "RAL") relates solely to individual (personal) taxpayers and not to their business activities or to businesses. This Part relates to the new obligations placed on such taxpayers arising from the shift towards online filing at which time taxpayers will not be required to send documentation in support of their (paper) tax return to the Comptroller.
7. While giving evidence to CSSP on 31 January 2019, Mr Shenton suggested that Article 26 duplicated Article 16A of the IncomeTax (Jersey) Law 1961 but this is not the case. Article 26 is limited in its scope as I describe matters above. Article 16A is wider in its application and is, of course, subject to criminal penalties.
8. Business records are subject to longer retention periods in the tax law and different production powers do currently apply (which will also be reviewed in due course). This is important for a number of reasons, not least of which is the requirement for business records to be kept for the purposes of enabling us to discharge our functions as a Competent Authority for the exchange of information under various international tax treaties.

Question 2: Why have terms "careless" and "deliberate" been used, rather than using the language of the current law, i.e. negligence and fraud?

9. As Mr Shenton explained during his appearance before CSSP, Jersey's tax laws have always been modelled upon UK tax law and it is the practice of the Royal Court to give regard to UK case law and precedent where it deems it is appropriate to do so. The use of the terms "careless" and "deliberate" reflects up- to-date language in UK tax statutes and is more appropriate language within the context of civil proceedings with a well-developed legal understanding of the concepts. (It is also considered that this language is more accessible to people whose first language is not English.) The use of the language has, of course, been supported by the Legislative Drafter and the Law Officers' Department.

Question 3: What guidance will the taxes office be producing regarding the definition of terms in the law such as "careless" and "deliberate" and when will this guidance be published?

10. Guidance is currently being drafted and will be circulated for comment to key stakeholder groups. We expect to publish it in the third quarter of 2019 (matters likely to be subject to the new penalties are unlikely to be examined before 2020). If helpful, the CSSP can see the comparable UK/HMRC guidance at:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/atta chment_data/file/703432/CC-FS7A.pdf

11. It is the Comptroller's general policy – wherever possible – to create only one piece of guidance for use both by taxpayers and tax officers. As mentioned above, a large body of legal precedent already exists around the meaning of these terms and the Commissioners of Appeal and Royal Court remain the ultimate arbiters of judgments about the nature of behaviours exhibited.

Question 4: Interest on late payments – what rate is charged in other jurisdictions and do other jurisdictions cap their rate in any way?

12. A table of comparative analysis is attached in Annex A.

Question 5: Some submissions called for closer alignment between interest on late paid tax and overpaid tax. How much tax falls into each of these categories currently? (please provide data for the last 3 years)

13. The table below shows the total amount of the tax (personal and corporate), surcharge, and late filing penalty outstanding at the date the surcharge is applied (second column) . It also shows the position at 30, 60, 90, and 120 days later.

Year of  Position  30 days  60 days  90 days  120 days assessment  on  later  later  later  later

surcharge

day

2016  £6.3m  £4.7m  £4.3m  £4.0m  £3.6m

14. The second table shows total repayments made in respect of personal and corporate income tax. It should be noted that there are few statutory repayment dates but that the taxes office makes every effort to process all repayments timeously. In many cases (notably under the current year basis regime) ITIS repayments are issued before the payment due date, meaning interest would not be payable in accordance with the RAL.

15. The ITIS column includes taxpayers who have made payments towards their tax liability via deductions made by their employer; the non-ITIS column includes companies that pay income tax, and individuals who do not pay by ITIS e.g. pensioners and self-employed:

Year of  ITIS  Non-ITIS  Total assessment

2016  £8.3m  £5.4m  £13.7m

16. Most jurisdictions operate a "spread" between the interest rate chargeable on tax paid late and on any repayments of monies which are incorrectly withheld from taxpayers beyond a statutory (repayment) date.
17. Some jurisdictions also make "repayment supplements" in wider ranges of circumstances. For example, where all – or part – of a tax assessment is appealed, some jurisdictions require the appealed amount to be paid up-front and will compensate the taxpayer with interest when an appeal is found in favour of the taxpayer. In Jersey we currently do not charge interest on appealed taxes which remain uncollected until an appeal is decided in favour of the tax administration. The Draft RAL would see interest charged in such circumstances in future, removing any incentive simply to appeal to erode the value of the tax charge.

Question 6: Was a statutory assessment window considered when the law was drafted and how would this work in practice?

18. A statutory assessment window is under consideration and the Minister welcomes the views of CSSP on this question.
19. The overall effect of current law is that the Comptroller may enquire into 5 previous years of assessment, except where there are grounds to believe that tax fraud and/or evasion may be in play (in which case a longer period of scrutiny maybe appropriate, especially where a tax assessment with penalties is being offered in place of a criminal prosecution with a potential custodial penalty).

20. The Minister is sympathetic to reducing this timeframe but does not consider that Jersey could emulate the one year window that exists in the UK, mentioned by Mr Shenton.
21. It will be important to balance competing needs here of fairness towards the individual taxpayer whose affairs are under enquiry and potentially incorrect (for whatever reason); and to ensure equity of outcome with regard to the majority of taxpayers who do pay the right tax at the right time.
22. There will also need to be transitional provisions with regard to ongoing compliance work.

Question 7: EY drew attention to the existing ability to levy a surcharge on late paid tax at a rate of 10%, which is being retained (and accelerated) in addition to the penalty interest. Why is it necessary to have both the surcharge and the penalty interest?

23. The surcharge is currently payable on income tax not paid "by 6 pm on the Friday following the first Monday in December of the year next following the year of assessment".
24. For simplicity – and to operate online filing effectively – Budget 2019 made the future deadline midnight on 30 November of the year immediately following the year of assessment (and midnight on 30 September for certain large companies). This takes effect with respect to the year of assessment 2019, with the first affected payments being in 2020.
25. The surcharge operates to dis-incentivise late payment after what remains a generous period of grace between earning income and paying tax on income (and bearing in mind most individuals pay tax monthly via the Income Tax Instalment Scheme).
26. Interest charges are simply commercial restitution for late payment, to ensure that the tax retains its real value and that there is no incentive to delay payment for pecuniary benefit.

Mr Shenton's evidence

27. I had the opportunity to review Mr Shenton's evidence and would like to make some observations.

Appeal matters

28. During their discussion about appeals, I think Mr Shenton mistakenly formed the impression that the Comptroller might be seeking to argue against the existence of the possibility of appeal against tax assessments and other tax decisions. The right of appeal against such things is fundamental and there is no question of change. However, I did not agree with GT's or EY's views that the Commissioners of Appeal were insufficiently independent for the reasons set out in my letter of 28 January 2019.
29. The question of a (new) right of appeal against a production power is however, more vexed. In my letter of 28 January 2019 (paragraph 29) I said that, "Given the use of Production Notices (such as an Article 16A Notice) is the "last resort" to tackle an unresponsive or obstructive taxpayer, there are good arguments for the present system. Investigations should be conducted quickly; and allowing taxpayers to challenge every request for information with a right of appeal can allow the most obstructive and those with deeper pockets to delay or even frustrate investigations." As I mention above, it is important to ensure that taxpayers who get their taxes wrong are not put in a position of advantage with regards to the majority of taxpayers who do pay the right amount of tax at the right time.

2017 Consultation on the Tax Compliance Framework

30. In 2017, we received 23 written submissions in response to our consultation on a range of proposed modernisations including many of the provisions contained in the Draft RAL. A number of tax professionals requested that their submissions not be published so we simply produced a summary document.
31. As Mr Shenton has said, his submission and others touched on matters which were outside the scope of the consultation exercise. This was addressed in the summary document and neither tax policy officials nor Ministers have lost sight of the wider concerns and issues addressed which really argue for a significant "tax law re-writing exercise" covering much of the technical aspects of Jersey's tax law.

The Tax Policy Unit's work programme

32. Annex B contains an indicative work plan covering the work of the Revenue Jersey's Tax Policy Unit; its International Tax team; and the dedicated policy principal embedded in our Revenue Transformation Team (who has led on the development of the Revenue Administration Law). The indicative plan seeks to demonstrate what further tax-law modernisation can take place over the next few years, assuming that the Tax Policy Unit continues to be funded at its present level. The plan also assumes that some aspects of the work can be "contracted out" subject to funding.
33. The work programme incorporates existing commissions from the Council of Ministers; the States Assembly (including CSSP); as well as the main technical needs of the tax profession; the known areas of interest of international players such as the OECD and the EU; and the requirements of Revenue Jersey itself. It also takes account of usual business activities such as management of the annual Budget process.
34. The Minister has yet to consider this work programme formally and the prioritisation of tax policy work is ultimately her prerogative. It will need to be understood and accepted by all stakeholders that changes to this work programme – once agreed – potentially require new resources; or re-deployment of existing tax resources; or the de-prioritisation of other tax policy projects.

RICHARD SUMMERSGILL

Annex A – Table showing comparative interest rates payable and paid by tax administrations

Jurisdiction  Late payment rate  Repayment rate  Notes

(annual)

Ireland  10% fiduciary taxes  4%  https://www.revenue.ie/en/tax-

including VAT and  professionals/tdm/collection/debt-

PAYE  management/guidelines-for-charging-interest-

on-late-payment.pdf

8% income tax,

corporation tax and  https://www.revenue.ie/en/vat/interest-and- capital gains tax  penalties/when-does-revenue-pay-

interest/index.aspx

United  6%  6%  https://www.natptax.com/TaxKnowledgeCente States  r/FederalTaxInformation/Documents/IRS%20I

nterest%20Rates.pdf

South  10%  10%  http://www.sars.gov.za/AllDocs/LegalDoclib/R Africa  ates/LAPD-Pub-IRT-2012-01%20-

%20Interest%20Rate%20Table%201.pdf

Annex B – Tax policy and administration priorities for 2019 and beyond

Tax policy developments  International tax  Administrative matters

Personal tax residence  Design of compliance and  Revenue information powers

supervision regime over the  and taxpayer record keeping Work will begin on examining  Common Reporting Standard

Jersey's personal tax residence  Tranche 2 of the RAL will also rules. A detailed scoping  Continuation and further  reflect work being undertaken exercise will be carried out and  refinement of compliance  to update Revenue Jersey's

this will be shared with  activity in the CRS space  information powers and their stakeholders.  interaction with taxpayer record

keeping obligations.

Article 16A notices will be included in this review.

Review of interest relief rules  Ensure Jersey obtains a positive  The five year assessment

rating in the Phase 1 peer  window

A major review of Jersey's  review of its compliance with

interest relief rules will begin in  BEPS Action 14 (Dispute  Consideration will be given to 2019. The policy objectives for  Resolution)  reducing the current five year this review will be agreed by end  window for raising amended 2019, in consultation with  Guidance for taxpayers on how  assessments (except in cases of stakeholders.  to access the mutual agreement  fraud or wilful default).

procedure in Jersey's double tax

All existing concessions and  agreements will be published.

reliefs that apply to interest will

be included in this review.  Revenue Jersey will continue to

work to agree amendments to

It is hoped to enact legislation to  its network of double taxation

support this review in 2020.  agreements to bring them into

There may be scope for  compliance with the BEPS

outsourcing certain technical  minimum standards.

aspects of this work.

Prior year basis to current year basis

A review will also be undertaken on the feasibility of transitioning prior year basis personal taxpayers to a current year basis.

Ensure Jersey obtains a positive rating in the peer review of its compliance with BEPS Action 13 (Country by Country Reporting)

Guidance and legislation will be amended to reflect feedback received in the course of the peer review.

Review of all concessions and reliefs

Revenue Jersey will prepare initial conclusions in Q1 on their internal review of concessions and reliefs. Feedback will be sought from the tax profession about these conclusions.

Mutual Trading  Ensure Jersey obtains a positive  Economic substance

rating in the peer review of its

The results of a review on the  compliance with BEPS Action 6  Work will continue with the EU taxation of profits of mutual  (Treaty Abuse)  Commission and OECD through trading will be presented to the  2019 to implement the new States Assembly as part of the  Synthesised texts will be  economic substance rules. This Government Plan 2020-23.  published showing the impact of  will also include consideration of

the Multilateral Legal  issues around corporate tax Instrument on Jersey's affected  residency and associated double taxation agreements.  reporting obligations.

The double taxation agreements with Guernsey and the Isle of Man will be amended to ensure compliance with the Action 6 report.

The GST treatment of digital  Ensure Jersey obtains a positive  2019 company tax return imports  rating in the peer review of its

compliance with BEPS Action 5  The 2019 corporate income tax The GST treatment of digital  (Harmful Tax Practices and  return will be re-designed to imports will be reviewed and the  Exchange of Tax Rulings)  reflect the new economic results presented to the States  substance rules, as well as other Assembly as part of the  requirements.

Government Plan 2020-23.

There may be scope for outsourcing certain technical aspects of this work.

Environmental taxes  AEOI reporting system  Mandatory Reporting Regime

Environmental policy is a  A review will be undertaken of  Proposals will be brought to the strategic priority for  the AEOI reporting system in  States Assembly for a new Government and a major review  order to ensure that it assists  Mandatory Reporting Regime on how to deliver this priority  users to comply with their  for CRS avoidance, in line with begins in 2019. The role of  obligations, while also supports  the political commitment given taxation will be an important  compliance activities and the  in Dec 2018. Full consultation element of this review.  generation of statistical  on the proposals will be

information.  undertaken with relevant

In particular, the future taxation  stakeholders.

of car ownership and usage will

be examined and the results

presented to the States

Assembly as part of the

Government Plan 2020-23.

Stamp duty and enveloped  Assistance in recovery of tax  A new Code of Conduct for properties  debt  Revenue audits

The results of the review on  Undertake a review of the legal  Revenue Jersey will share work Stamp duty and enveloped  and systems changes required in  in Q3 of 2019 with the tax properties will be presented to  order to support the agreement  profession about guidance on the States Assembly as part of  to assist in the recovery of UK  Revenue compliance and audit the Government Plan 2020-23.  tax debts  policy.

The role of taxation in the  Combined Employer Return States' Housing Strategy

Work is ongoing in 2019 on a The Tax Policy Unit will provide  review of the Combined support (as required) to the  Employer Return to include ITIS, Housing Development Board  Social Security Contributions, throughout 2019 on the role of  Manpower and Statistics

fiscal policy in Jersey's housing  information and to improve its strategy.  functionality.

This will require changes to all relevant laws. The target is that businesses will be able to discharge all of their reporting to Government on relevant matters through a single return rather than the current multi- return requirements.

Rates review  Legal responsibilities of

Revenue Jersey

Examination of the rates regime

to determine whether  Control and administration of Regulations are required for the  social security contributions and revaluation of rateable values of  customs/excise duties by property in Jersey.  Revenue Jersey and necessary

legislative changes.

Indicative  Review of the personal income  Comprehensive review of CRS  Revenue Jersey access powers work in  tax regime  compliance

2020/21  A consolidation of Revenue

The finalisation of legislation  Work to support a positive  Jersey's taxpayer access powers and work on implementing the  assessment of Jersey's  will be carried out in 2020/21. personal income tax policy  compliance with the CRS by the

determined by the States  OECD's Global Forum on Tax

Assembly in 2019.  Transparency and Exchange of

Tax Information

Personal tax residence  Taxpayers' Charter

Completion of personal tax  Work will take place in residence review and  consultation with the tax introduction of supporting  profession, to determine the legislation.  best way forward as regards

introducing the principles of a Taxpayers' Charter.

Review of interest relief rules  Information retention

requirements

Detailed recommendations will

be made to the States Assembly  Consolidation of information on the reform of interest relief  retention requirements under rules.  Revenue laws.

Stamp duty and enveloped  Economic substance properties

Revenue Jersey will implement Legislation to be introduced.  and then begin compliance

activity on the new Economic

Substance rules.

A Code of Conduct for Revenue audits

Revenue Jersey will continue work in 2020 and thereafter on guidance on compliance and audit policy. This will be a collaboration that will continue as Revenue compliance and audit policy evolves.

Domestic CRS

A domestic CRS regime will be introduced in 2020/21, once the Revenue Jersey computer system is fully operational and all new Tax Identification Numbers have been issued to taxpayers.

Consideration of introduction of iXBRL tagging for the largest companies