Shedding some light

From John Clennett.

MR Pierre Horsfall (JEP, 4 November) has shed some much needed light on the murky background to the negotiations with the UK resulting in zero-ten.

For example, the reason for the long delay from adoption by the States in 2004 to implementation in 2009 is now clear. The States were given five years to prepare the ground to cope with the loss of more than £100 million of tax revenue.

It seems that very little was done and Nemesis has now arrived. It would now seem impossible to claim that the Island’s current financial problems are due to events that could not reasonably have been foreseen.

Of far greater importance is the disclosure of the addition to the EU Code of Conduct intended to ensure, as Mr Horsfall puts it, that if the EU made a proposal regarding our finances which our constitutional relationship did not allow we could not be directed to comply. This was apparently seen as something of a victory by our representatives and lead eventually to the adoption of zero-ten.

As events have unfolded it has become evident that zero-ten creates a number of problems and anomalies.

The sudden loss of £100 million of tax revenue with no obvious alternative source available is evidently a big problem. The States were advised back in 2005 that to recover such a sum through reducing expenditure would probably need unacceptable cuts in essential services.

The move to zero tax for all companies registered or trading in Jersey has indeed removed discrimination between onshore and offshore companies and cost £100 million.

However, the introduction of a ten per cent tax on finance companies, however defined, would appear to discriminate as between finance companies and others.

While, under zero-ten, no company whether onshore or offshore will be liable to tax on its profits it has been decided that Jersey residents who are shareholders in Jersey companies shall be liable to a personal tax based on the profits of their company.

This, in itself, is not unreasonable but it seems to be a fig leaf to avoid accusations of tax discrimination between onshore and offshore companies. The effect is that if there are two companies, one onshore and one offshore, competing in Jersey in the same or similar activity the Jersey company is effectively being taxed and the offshore company pays no tax or any direct contribution to the Jersey exchequer. This creates a totally false area of equality of treatment.

It remains to be seen whether the amendment to the Code of Conduct cited by Mr Horsfall carries with it the powers that it appears to have. Assuming it does, one has to ask, given the difficulty of compensating for the loss of £100 million and the anomalies created, would it not be better to revert to the status quo and seek a fresh solution to the problem, unless of course there are other plans afoot of which we as yet have no knowledge.