Jersey corporate tax schemes targeted in tough new EU regs

Thursday 15 March 2018

Tax advisers across Europe could face heavy fines if they fail to report company tax schemes involving shifting profits to zero corporation tax jurisdictions like Jersey, after strict new measures were agreed by EU finance ministers.

The measures were approved this week as part of a package of reforms the EU ministers hope will clamp down on “aggressive” tax planning.

Those rules – proposed back in June by the European Commission and now being finalised by the European Parliament – will put lawyers, banks and accountants under new pressure to disclose any tax schemes involving their clients that could be perceived as ‘harmful’.

If they don’t, they could risk being fined heavily for breaching the law.

Those penalties will be set by each of the 28 EU member states separately, but officials have advised that they will be “effective, proportionate and dissuasive.”

If the tax adviser is located outside of the EU, the onus then falls on the company or individual using the scheme to disclose it. 

The new reporting requirements specifically target cross-border arrangements involving Jersey, as well as other zero or “almost zero” corporation tax jurisdictions such as the Bahamas, Bahrain and the Cayman Islands. 

All new regulations brought into force by the EU must have the support of all member states, but it has been reported that the corporation tax ruling saw initial opposition from some governments.

It had originally been proposed that the new rules should encapsulate all nations offering a corporate rate of less than 35% of the statutory average across the EU – a move that would have meant that schemes involving countries with a 7% rate must be reported – but this was thrown out on the grounds that it could cause an “administrative burden.”

This week’s meeting also saw ministers decide to add the Bahamas, US Virgin Islands and Saint Kitts and Nevis to their tax haven ‘blacklist’, while Bahrain, the Marshall Islands and St Lucia were delisted. Removal from the list can mean losing out on EU funding and coming under heavy sanctions.

The Channel Islands, meanwhile, remain clear of the blacklist despite fears in the wake of the Paradise Papers revelations. However, they are still placed on what has been described as a “grey list” after EU officials raised concerns that the island allows structures to make money without demonstrating any “real economic activity.” 

A spokesperson for the States of Jersey commented: “We continue to support fair tax competition, and view legitimate tax planning as an appropriate response to operating cross-border. We do not, however, support that which goes beyond legitimate tax planning for commercial purposes and we have made it very clear that we do not want our service providers to host abusive tax schemes designed to frustrate the will of national parliaments.”

Amy Bryant, Deputy CEO of Jersey Finance, commented that the island has "no interest in abusive tax schemes."

"...If a scheme is found to be abusive, we will not house it. Further, we are working constantly with stakeholders in the UK and EU to help build a better global transparency framework, and we remain committed to cooperating with international partners, being fully signed up to sharing information under the Common Reporting Standard, being one of the first jurisdictions in the world to introduce Base Erosion and Profit Shifting rules into our domestic law, and sharing beneficial ownership information with tax authorities," she said.