Jersey is not a Treasure Island full of pirates - blog

For those who have seen the film Pirates of the Caribbean, or have a passing interest in 17th century buccaneers, the term ‘Living by the Code' should be reasonably familiar.

I am of course referring to the Pirate Code, or the code of conduct invented for governing pirates.

And I do wonder at times if we are regarded by some EU nations as ‘pirates', based in ‘treasure islands' full of loot!

One of the best known examples of the Pirate Code was set down by the famous Welsh pirate Bartholomew Roberts, otherwise known as ‘Black Bart' in 1720, whose version of the articles included such sensible measures as the allocation of a pension based on "severity of wounds".

Roberts was a protégé of Henry Morgan, and both were involved in the famous Brethren Court, where many details of the Pirate Code were laid down and agreed upon.

When recently reading around the subject of the EU Code of Conduct on Business taxation I was struck by a number of parallels between the two codes.

Both have a set of rules and principles but have no legal force, both are dependent on the shared need of common parties, whose collective self interest is served by its observation, and for those who don't comply there is always the sanction of condemnation and retribution.

The EU code of conduct was first introduced in 1997 and set out to do two things.

Firstly to tackle harmful tax competition through the introduction of standstill and rollback measures, and secondly to ensure no new measures of a ‘harmful' nature are introduced.

Member states were and are expected to adopt these goals themselves and to encourage their adoption in third countries, although so far they have only been taken up in EU States and their associated and dependent territories.

Interestingly steps are now being taken to encourage Switzerland and Lichtenstein down this route.

So what are the EU Code of Conduct ‘rules of the road'?

In the EU's own words the Code was specifically designed to detect only such measures which unduly affect the location of business activity in the Community by being targeted merely at non-residents and by providing them with a more favourable tax treatment than that which is generally available in the Member State concerned.

The criteria for identifying potentially harmful measures include:

• an effective level of taxation which is significantly lower than the general level of taxation in the country concerned;

• tax benefits reserved for non-residents;

• tax incentives for activities which are isolated from the domestic economy and therefore have no impact on the national tax base;

• granting of tax advantages even in the absence of any real economic activity;

• the basis of profit determination for companies in a multinational group departs from internationally accepted rules, in particular those approved by the OECD;

• lack of transparency.

Clearly, there is a fair amount of scope for interpretation! But where I find the most difficulty, is with the term "harmful tax competition" which seems to me to be something of a contradiction - is competition intrinsically harmful?

And I am not alone.

Dr Philip Booth of the Institute of Economic Affairs has said: "Impeding tax competition, through the operation of a cartel of governments that sets tax rates and/or rules, is an abuse of power by government, much more serious than any abuse by monopolies acting in private markets.

"It is more serious because governments have a monopoly of coercion and, if tax competition is prevented, individuals will be unable to choose the kind of governments under which they live or the kind of countries in which they invest on the basis of their preferences."

Jersey Finance welcomed news a review and formal assessment by the Code Group is due to take place in September, as the uncertainty created by ECOFIN's comments could be damaging to businesses.

Isle of Man seem to be taking a similar approach to Jersey, seeking clarity and understanding, while Guernsey are not being assessed, presumably because their commitment to change is seen as stronger than either of the other two Crown Dependencies.

Meanwhile, Jersey has launched a Business Taxation Review and interestingly it provides clear evidence of the previously agreed position and understanding with the EU on the 0/10 frameworks.

It states: "It should be noted that in 2003 and 2006, assurance had been given to the Crown Dependencies that the proposed 0/10 regimes were not considered to be harmful"

So, to return to the concept of ‘the Code'. I do wonder at times if we are regarded by some EU nations as ‘pirates', based in ‘treasure islands' full of loot!

This is a myth which continues to be perpetuated by tax hobbyists and propagandists as a way of earning a living. One can only speculate but the latest turn of events has all the hallmarks of a politically motivated intervention.

There are no widely accepted international standards in terms of either tax rates or tax scheme design, with a plethora of rates and frameworks having evolved over many centuries.

Jersey Finance has written to the Jersey government on behalf of industry, recommending it extend the current Business Tax Consultation until the outcome of the Code Group Assessment is known.

It seems the Crown Dependencies are increasingly being asked to shoulder the onerous obligations and accountability attached to members of a large trading club (the EU), with none of the associated benefits in terms of market access, trade, and double tax treaties.

If the EU is really committed to fairness this needs to change.