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Along with other offshore centres, Jersey has been affected by the economic crisis. It has been looking to increase local spending to stimulate its economy. Job creation schemes are being undertaken. But unlike many other offshore domiciles it has no public debt and still has a substantial strategic reserve. It also has one of the highest rates of GDP per capita in the world and has been consistently been in the top ten of this ranking for some time now. Just over 50% of the Jersey economy is dependent upon financial services.
The Jersey economy will be affected by the outcome of the reforms requested to its corporate tax regime. It has been told that its ‘zero-ten’ tax system will not comply with the requirements of the EU Code of Conduct on Business Taxation – this is despite the fact that Jersey’s chief minister believes that he had been assured that the system was acceptable. Now it is being told that its corporate tax code breaks the “spirit” of the EU’s code. It is expected that that there will now be changes to the corporate tax regime in the next three years. (The ‘zero-ten’ system was originally introduced to comply with the EU Code of Conduct for Business Taxation and promote equal tax treatment between companies, following pressure from the EU.)
Jersey has had fiscal autonomy in setting its rates of tax and the Island’s low rate of income tax and tax provisions in general, have remained unchanged since 1940. There are neither capital gains taxes, estate or inheritance duties, nor value added, sales or other taxes applying to fees or charges for professional services. However, as with other UK offshore centres, Jersey’s fiscal autonomy is coming under greater scrutiny.
The pressure that has been bought to bear on offshore centres recently from the G20 and the EU threatens to erode their fiscal independence. The ‘zero-ten’ corporate tax issue is an example of this. It suggests that there will be further threats to Jersey’s fiscal autonomy in the future. The UK Government’s City minister, Lord Myners, has suggested that low taxation is not a sustainable economic model for offshore centres. (Lord Myners worked for Gartmore for many years, a fund manager that had a large presence in Jersey during his time at the firm.)
Governmental and political system
Jersey has its own government system and is classed as a British Crown Dependency with a chief minister at its head. It has no political parties. Jersey’s legislative assembly, the States of Jersey, has 53 elected Members, and has responsibility for the Island’s domestic legislation, including taxation and financial regulation. The Island has a special relationship with the European Union, defined by Protocol. Neither a member nor associate member, the special relationship with the European Union is ratified by Protocol 3 of the Treaty of Accession of the United Kingdom to the European Community.
Jersey’s low tax, or zero tax, policy has come under criticism and has for example been featured in a number of BBC documentaries. However the Chief Minister of Jersey, Terry Le Sueur, has countered these criticisms, saying that Jersey is among the most cooperative finance centres in the world.
Stability and infrastructure
Jersey has a well developed infrastructure. St Helier, its capital, is a large town by comparison with those in other offshore centres. Jersey is also highly stable.
Threats to this domicile
Jersey’s fiscal position is stronger than the other two UK offshore centres at present. In fact it may well be in the strongest position of all offshore fund domiciles. But like its offshore rivals it too faces threats to its independence. The calls for a revision to its ‘zero-ten’ tax system (see above) is an example of this.
Threats to its independence are or course something it shares with the other offshore fund centres, particularly the other Crown dependencies. In addition to which, like them, Jersey will have to wait to find out how it will be affected by the EU’s AIFM Directive. Insofar as Jersey is home to funds that have or want distribution within the EU this could pose a problem.