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JERSEY
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International Agreements

Until recently, Jersey did not normally enter tax treaties as a matter of policy; for some time double taxation agreements existed only with the United Kingdom and Guernsey, and a limited agreement with France exempting a resident of either country from tax in the other country on profits from shipping and air transport.  

However, in response to the growing demands of the OECD and its member governments for greater fiscal transparency, Jersey has been keen to foster an image as a reputable international finance centre and has begun to sign more tax treaties, and agreements for the exchange of tax information.

In addition to the DTAs with the UK and Guernsey and the limited agreement with France, Jersey has entered into tax treaties with Malta, Denmark, Finland, Iceland, Sweden, the Faroe Islands, Greenland, and Norway (the latter seven countries being collectively known as the 'Nordic Group'). A treaty with Estonia was ratified by Jersey in March, 2011, while negotiations towards a DTA were ongoing with Belgium, Qatar and Bahrain in May, 2011.

Jersey has signed 15 bilateral Tax and Information Exchange Agreements, including with France, the UK, Germany, Sweden, Norway, Iceland, Greenland, Finland, the Faroe Islands, Denmark, the Netherlands, Ireland, Australia, New Zealand, the United States, Portugal, China, Turkey, Mexico, Canada and Indonesia. The agreements with China, Turkey, Mexico and Canada were expected to come into force in the first half of 2011, while the agreement with Indonesia should come into force during the second half of 2011. Limited double taxation avoidance agreements have also been concluded with some of these countries.

Agreements initialled and ready for signing include those with Argentina, Brazil, Czech Republic, Greece, India, Italy, Japan, Poland, Republic of Korea and South Africa. Furthermore, draft agreements have been exchanged with Hungary and Spain.

Ahead of the signing of the TIEA with the UK in March 2009, Jersey’s Chief Minister, Terry Le Sueur said: “We are particularly pleased to have Jersey recognised by the UK as a member of the community of jurisdictions committed to international co-operation and information exchange on tax matters, and to have their assurance that Jersey will be treated as such by the UK authorities.”

He added: “Last year the OECD Secretary General referred to the fact that Jersey has signed a number of Tax Information Exchange Agreements, and called for clear political recognition for those offshore financial centres that have made this kind of progress. We hope to see this reflected in the outcome of the G20 Summit in London on April 2 and that there will greater pressure put on those countries, including some OECD members, who have not yet shared Jersey’s commitment to transparency and co-operation.”

In its progress report on the implementation of the internationally agreed tax standard, issued in conjunction with the G20 London Summit of April 2, the OECD listed Jersey as a jurisdiction that has “substantially implemented” said standard and thus the jurisdiction gained a place on the Organization’s ‘white list’ of compliant jurisdictions.

Jersey Double Tax Treaties

The UK and Guernsey treaties do not conform to the OECD standard model treaty. Their main features are as follows:

  • the profits derived from an industrial or commercial enterprise in one country will not be taxed in the other country except to the extent that they are attributable to a permanent establishment;
  • profits of shipping or air transport attributable to a resident of either country are not taxed in the other country, regardless of 1.
  • an individual resident in only one of the two countries is exempt from tax in the other country on personal, including professional services performed in the other country on behalf of a resident of his own country (but they must be taxed in his own country)
  • if despite the above, tax is payable in both countries, the tax paid in one country is allowed as a credit against tax due in the other. However as far as Jersey is concerned allowance for tax paid is only up to 20% of the taxable income in the other country, i.e the Jersey rate of tax is applied to, say, UK taxable income rather than the amount actually levied by the UK Inland Revenue. This means that there is effectively only a partial double taxation agreement between Jersey and the UK.
The agreement with the United Kingdom specifically excludes dividends and debenture interest from its provisions.

International Business Companies (which are in any case being phased out) are not entitled to the benefits of the UK double tax treaty.

In December 2009, the Jersey authorities released guidance for Jersey residents with UK pensions following the entry into force on November 27, 2009, of a bilateral Tax Information Exchange Agreement (TIEA) signed by the two governments in March 2009.

Alongside the signing of the TIEA, the two authorities agreed to amend the 1952 Arrangement between Jersey and the United Kingdom for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income.

This incorporates a major change to the tax treatment of pensions, which means that Jersey residents will no longer be taxed by the UK tax authorities on certain pensions that they receive from the United Kingdom.

The Island's Comptroller of Income Tax, Malcolm Campbell, commented that:

“Following the enactment in the UK of the Double Taxation Relief on International Tax Enforcement (Jersey) Order 2009, Jersey residents in receipt of a UK pension may apply to the UK Tax Authority, HM Revenue and Customs (HMRC), to have, with effect from the April 6, 2010, their UK pension paid to them without the deduction of UK tax”.

“This arrangement could mean significant savings in terms of tax paid for some Jersey residents, who could have been paying 40% tax to HMRC on their pension and who may in future be subject to tax at 50%. The arrangement means that, subject to a claim being made and accepted by HMRC, Jersey residents will only be paying tax in Jersey, at a maximum rate of 20%, on their UK pension.”

The arrangement also affects residents of the United Kingdom who have been paying Jersey tax on their Jersey pensions.

Under the new regime, UK residents will be able to apply to the Comptroller to stop Jersey tax being deducted from their Jersey pensions, meaning that they will only pay tax in the United Kingdom.

Jersey International Agreements

It became clear in May 2002 that Jersey, along with its fellow UK dependent territories Guernsey and the Isle of Man, would agree to be part of the EU's information-sharing regime, whereby financial institutions are obliged to pass details of income on investments by nationals of EU member states to their home tax administrations. The EU began information-sharing in 2005, and after some hesitation, Jersey decided to opt for a withholding tax on the Swiss model. This withholding tax became effective from July 1, 2005 at an initial rate of 15%, 20% from July 1, 2008 and 35% from July 1, 2011. Jersey's Comptroller of Income Tax reported in mid-2006 that GBP13 million was collected in withholding tax revenues from bank deposits in the first six months of the directive. For the year 2007, Jersey paying agents retained and passed to the Comptroller a total of GBP34.98 million of withholding tax. This rose slightly to and GBP36.62m in 2008.

In November, 2002, Jersey signed a Memorandum of Understanding (MoU) with the Gulf state of Bahrain, designed to facilitate cooperation between the two countries on issues such as applications for licences from financial institutions, and the investigation of irregularities.

In October 2003, the Jersey Financial Services Commission announced that Jersey had signed a Memorandum of Understanding (MoU) with the International Organisation of Securities Commissions (IOSCO). The MoU is designed to combat securities and derivatives violations. It obliges signatories to share information about the illegal use of their securities and derivatives markets with each other. In signing up to the MoU, Jersey joins another 24 members. However, according to the JFSC, the island is one of the first offshore finance centres to join. "By signing this memorandum with IOSCO, Jersey reinforces its status as a leading international financial centre and gives international investors greater confidence in the island," JFSC compliance director, John Pallot explained.

In 2006, the JFSC signed Memoranda of Understanding with the regulators in Dubai, Qatar, the Netherlands and the Cayman Islands. These agreements have formalised arrangements for cooperation and information sharing between the regulators and facilitated the enforcement of, and compliance with, the laws of their respective jurisdictions in a bid to help protect investors and depositors and to promote the integrity of financial services markets in the two jurisdictions.

The Jersey Financial Services Commission and the Cyprus Securities and Exchange Commission signed a memorandum of understanding in February 2007 that will further co-operation between the two regulatory bodies.

The JFSC signed a Memorandum of Understanding in April 2007 with two other authorities: the Office of the Superintendent of Financial Institutions Canada (OSFI) and the Irish Financial Services Regulatory Authority (IFSRA).

The JFSC and the British Virgin Islands Financial Services Commission signed a memorandum of understanding in August 2007.This establishes a formal basis for co-operation, including the exchange of information and investigative assistance.

In October 2009, Jersey’s regulator, the Financial Services Commission, signed a statement of cooperation with four United States' financial regulators.

The statement was signed by the JFSC’s Director General, John Harris, and formalizes existing arrangements for cooperation and information sharing between the respective agencies and Jersey.

Jersey's Chief Minister, Terry Le Sueur, said: “This agreement recognizes that the commission and its counterparts in the United States rely on the quality of each other’s regulatory standards. It is the latest in a number of such agreements between the commission and other regulators around the world, and reflects the cooperation that already exists between Jersey and the United States.”

“Jersey signed a Tax Information Exchange Agreement with the US in 2002, and earlier this year I received a letter from the US Treasury, setting out the importance the US Administration attaches to this transparency agreement,” he continued.

"In the letter, Mr Michael Mundaca, from the US Treasury Department, stated that the US Administration believes it is important to distinguish between those jurisdictions that are adopting international standards for information exchange and those that are not.”

“Close co-operation with the US regulators during the current period of change can only benefit an industry which prides itself on meeting international standards,” Le Sueur concluded.

In November 2009, the JFSC Polish Financial Supervision Authority signed a Memorandum of Understanding (MoU) that will further regulatory cooperation between the two bodies.

The MoU establishes an agreed mechanism under which the signatories commit to using their statutory powers of cooperation to assist each other.

John Harris, Director General of the JFSC, said: “I am delighted to sign this Memorandum of Understanding with the Polish Financial Supervision Authority. The global financial crisis has highlighted the need for close cooperation between regulators and this Memorandum will assist in that regard by establishing a formal framework for the exchange of regulatory information and the provision of investigative assistance. Such collaboration should help to protect investors and depositors and promote the integrity of financial services markets in Jersey and Poland.”

In December 2009, JFSC signed a Memorandum of Understanding with Belgian regulator, the Banking, Finance and Insurance Commission, formally enhancing cooperation on regulatory matters.


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