guardian.co.uk,
Simon Bowers in St Helier , Tuesday 26 June 2012
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| St Helier, the capital of Jersey, where the controversial financial industry has come in for criticism from politicians in the UK. Photograph: Martin Argles for the Guardian |
A barrage
of regulatory clampdowns and political attacks on the Channel Islands'
controversial financial industry has prompted one of Jersey's most senior
politicians to call for preparations to be made to break the "thrall of
Whitehall" and declare independence from the UK.
Sir Philip
Bailhache, the island's assistant chief minister, said: "I feel that we
get a raw deal. I feel it's not fair … I think that the duty of Jersey
politicians now is to try to explain what the island is doing and not to take
things lying down.
"The
island should be prepared to stand up for itself and should be ready to become
independent if it were necessary in Jersey's interest to do so."
In a
Guardian interview, he said strained relations with the UK over the past five
years had made it "very plain" that Jersey's interests were not
always aligned with those of Britain.
"I
hope that the constitutional relationship with the UK will continue. But if it
becomes plain that our interests in fact lie in being independent it doesn't
seem to be that we should bury our head in the sand and say we're not going to
do that."
For decades
Jersey's tax, legal and regulatory framework has been structured to draw in the
financial activities of multinational businesses and wealthy individuals. But a
growing backlash has seen politicians in the UK and elsewhere lashing out at
aggressive schemes leeching tax revenues from the increasingly stretched public
wallets.
François
Hollande swept to power in France last month with a manifesto pledge to stop
French banks operating in tax havens.
Meanwhile,
Barack Obama has introduced draconian anti-avoidance laws that from next year
will require financial companies around the world to report to US tax
authorities the details of assets owned offshore by wealthy Americans. Failure
to comply will result in punitive taxes.
David
Cameron took the unusual step last week of condemning the personal tax affairs
of the comedian Jimmy Carr, who was found to be using a controversial avoidance
structure involving a Jersey trust company. The prime minister said it was
"morally wrong".
Jersey's
chief minister, Ian Gorst, has attempted to distance the island from this type
of activity: "There is no wish or need to accommodate or give
encouragement to those who seek to involve Jersey in aggressive tax planning
schemes to avoid UK tax."
But his
views are understood to have sparked heated debate among the islands' senior
politicians, with the Treasury minister, Philip Ozouf, later tweeting: "I
don't think it's the place of our government to comment on the moral
application of activity which is legal."
Ozouf has always
said he supported the chief minister's statement.
In his
March budget, George Osborne announced measures designed to claw back tax
revenues leaking from Treasury coffers. "I regard tax evasion – and,
indeed, aggressive tax avoidance – as morally repugnant," he declared as
he outlined initiatives on stamp duty avoidance, offshore pensions and VAT-free
websites.
His
comments echo those of Treasury chief secretary, Danny Alexander, who last week
repeated his claim that "people who aggressively avoid tax are the moral
equivalent of those who cheat the benefit system". He claimed the
coalition was doing "more than any previous government" to crack down
on avoidance and evasion.
The
chancellor has ordered a Treasury team led by Graham Aaronson QC to work up
proposals for a general anti-avoidance rule designed to deter the most
artificial tax schemes. Action to create fresh avoidance-busting laws was
spurred by the court of appeal's reluctant decision last summer to wave through
one of the most egregious tax schemes in recent years.
The scheme,
known as SHIPS 2, involved transactions through Jersey and other tax havens,
generating a tax loss that 70 wealthy UK residents were able to offset against
income and capital gains tax bills.
It was
marketed by the Mayfair firm Matrix Tax Solutions, a now defunct arm of the
financial conglomerate Matrix Group. The group's co-founder and chairman, David
Royds, has given £110,000 in donations to the Conservative party since 2008.
Lord
Justice Toulson said the ruling to back the structure was made despite knowing
"it instinctively seems wrong". Lord Justice Thomas noted the
beneficiaries "received benefits that cannot possibly have been intended
and which must be paid for by other taxpayers".
Matrix told
the Guardian: "SHIPS 2 was marketed almost 10 years ago, and attitudes
have changed." But Aaronson has singled it out as a prime example of a
scheme that "shows the inadequacy of the existing means of combating
highly artificial tax avoidance schemes".
Not
everyone shares the moral outrage at legally permitted tax schemes,
particularly in the Channel Islands.
"Every
state in the world has a different tax regime which every individual, wherever
they sit, has a right to take advantage of," said Julian Winser, head of
Schroders' Channel Islands private banking arm and president of Guernsey
Chamber of Commerce.
"The
principle of the free market is that it [legal tax avoidance] is available to
all – even if some of them can't reach it. You could argue exactly the same
thing from a job perspective by dint of the fact someone didn't have the right
education. Ultimately the politics of envy creeps in to it."
Bailhache
is equally robust in defending tax structures. "I think this idea that
there is some kind of grey area where things are within the law but you
shouldn't do them is potentially quite difficult … People have to ask
themselves: 'If you feel strongly [about] something people ought not to be
doing, why don't you change the law to make it unlawful?'"
In an
interview before Carr's tax arrangements were condemned last week by Cameron,
Bailhache said Jersey's financial industry had to deal delicately with moral
outrage in the UK at legal tax avoidance.
Another
senior Channel Islands politician, who asked not to be named, said there was
much private frustration at suggestions a Jersey trust company should be blamed
for Carr avoiding UK tax.
He said:
"The UK tax code is horrifically complicated. It has all sorts of
exemptions and allowances and schemes – and that's fertile ground for tax
avoiders."
In the face
of ferocious political attack, Jersey is for the first time opening an office
in London and frantically building lobbying contacts in Washington in an effort
to repair relations. It has hired a top London public relations firm,
Brunswick.
"We
want to educate. We want to explain what the island is doing," said
Bailhache, who is also the minister in charge of Jersey international
relations. "We understand that the movement is towards collecting as much
tax as the UK legitimately can do and it's not part of our function to help UK
citizens to avoid paying their dues in the UK."
Previously
relying on Britain to look after its international interests, Jersey last year
began forging its own relations in Brussels.
Meanwhile,
the island's powerful finance lobbying arm, Jersey Finance, is looking at ways
to reduce the heavy dependence on UK and continental Europe, recruiting
representatives in Abu Dhabi, China and are considering a new bureau in Brazil.
Lord McNally,
the UK minister responsible for dealing with the Channel Islands, said he was
well aware of disgruntlement. "The Crown Dependencies [the Channel Islands
and the Isle of Man] are quick to point out their rights. A couple have
independence movements and talk about going completely independent. I think it
would be rather ill-advised of them to do so."
Back from a
tour of the islands this month, McNally told the Guardian he had left them in
no doubt the days of Britain turning a blind eye to aggressive loophole
industries in the Channel Islands were over. "Treasuries all over are
making tough decisions in these difficult times," is his message to the
Channel Islands. Following a series of tough measures in the budget, he recalls
being asked: "Is this the last time [the UK] Treasury is going to come
stopping us doing things?"
His reply
was firm: "No. The Treasury will continue to do its job."
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