Jersey is at threat of returning to the EU's tax haven blacklist after "deficiencies' were identified in a new law created to clamp down on harmful tax practices and secure the island's reputation.
The Economic Substance Law was introduced last year to ensure that the island cannot be used as a base for 'shell' companies facilitating tax dodging amid pressure from EU Finance Ministers.
Following revelations in the Paradise and Panama Papers, Jersey avoided being blacklisted by the EU Code Group, but instead placed on a ‘grey list' and warned that it must make improvements or face blacklisting.
Those changes focused on showing that companies listed as being based on the island – many of which relate to Intellectual Property (IP) rights, such as in the case of footballer Paul Pogba – were genuinely located and operating there.
Pictured: States Members will vote on the amendments to the law brought by External Relations Minister Senator Ian Gorst in June.
The new law therefore stipulated that companies registered in Jersey must produce business plans, detailed information on employees and proof decisions were really being made on the island.
Its introduction led to the island being taken off the 'tax haven greylist' in January.
However, following review from a senior official from the OECD Forum for Harmful Tax Practice, it's now emerged that the law as it stands is not up to scratch and is in need of amendments.
Despite being "minor", External Relations Minister Senator Ian Gorst has warned that failure to make them "would damage Jersey's reputation and could result in the island being listed as a harmful tax jurisdiction."
"The direct and indirect impacts of such a finding on industry, particularly the financial services sector, could be significant," he wrote in a report outlining the changes needing to be made.
Pictured: The Senator warned that Jersey's reputation could suffer and that the island could be blacklisted if the changes aren't made.
In total, he will be asking States Members to vote on four different changes to the law, including amending the definitions of a "fund management business" and "core income-generating activities" happening in Jersey, as well as changes to the articles relating to requirements to meet economic substance tests, and the exchange of information with other authorities.
A government spokesperson commented: "The amendments are in line with previously declared commitments to the EU Code Group, and they prepare Jersey’s legislation for assessment by the OECD in the summer. These amendments are important for Jersey to continue to meet the developing international standard on economic substance. In particular the amendment clarifies the expected location of core income-generating activity and makes a tweak to the definition of fund management business."
States Members will be asked to vote in favour of the amendments in early June, ahead of a scheduled meeting with the FHTP that month.
The spokesperson added: "States Members have a track record of approving legislation that ensures Jersey meets international standards in its financial services sector."
The news comes amid continuing scrutiny from UK MPs, who want to force the Crown Dependencies to introduce public registers of beneficial company ownership in a bid to clamp down on money-laundering. However, Jersey, alongside Guernsey and the Isle of Man, argue that they are already well-regulated jurisdictions and that any attempt by the UK government to impose law on the Crown Dependencies would spark a constitutional crisis.
Pictured: Dame Margaret Hodge and Andrew Mitchell - two UK MPs who want the Crown Dependencies to introduce public company ownership registers.
For now, debate on the matter has been shelved, but the MPs leading the charge - Dame Margaret Hodge and Andrew Mitchell - are keen to keep the pressure on. MPs will finally get to vote on the matter when the UK government puts forward its Financial Services Bill, which had previously been sidelined while Brexit legislation was prioritised.
Comments on this story express the views of the commentator only, not Bailiwick Publishing. We are unable to guarantee the accuracy of any of those comments.
Once your comment has been submitted, it won’t appear immediately. There is no need to submit it more than once. Comments are published at the discretion of Bailiwick Publishing, and will include your username.
There are no comments for this article.