After months of discussion, EU finance ministers agreed this week on a blacklist of ‘non-cooperative’ jurisdictions which comprises 17 territories around the world, including Bahrain, Barbados, South Korea, Macau, Panama and the United Arab Emirates.
More than 40 other jurisdictions were asked to reform their tax structures by next year, including Jersey and Guernsey, which has led to speculation that they have been placed on a ‘grey-list’.
A spokesman for Jersey’s External Relations Department said, however, that such a list did not exist.
‘Only one list has been produced by the Code of Conduct Group on Business Taxation and approved at ECOFIN [the EU’s Economic and Financial Affairs Council],’ he said.
‘This is the “EU list of non-cooperative jurisdictions for tax purposes” known as the “blacklist”. Jersey does not appear on that list.
‘Jersey features only once in the council conclusions, adopted at ECOFIN, in Annex II. That annex is called “State of play of the co-operation with the EU with respect to commitments taken to implement tax good governance principles”.
‘It provides an update on the 40-plus jurisdictions who have made commitments to meet certain concerns raised by the Code Group by the end of 2018. It is this annex which has erroneously been called a “grey-list”.’
Chief Minister Ian Gorst has said that new legislation would be introduced in Jersey to meet the one area of concern raised by ECOFIN, which was whether companies registered here for tax purposes were carrying out ‘real economic activity’ in the Island – known as an ‘economic substance’ test.
In response to the grey-list speculation, Senator Gorst wrote on Twitter: ‘Reports that Jersey is on a “Grey List” are simply incorrect. #ECOFIN Conclusions acknowledge Jersey is a cooperative jurisdiction, has built a positive relationship with the EU, and is determined to meet its commitments by the end of 2018.’
However, in response Richard Murphy of Tax Research UK, a long -term critic of the Island’s finance industry, wrote: ‘Come on Senator @Ian_Gorst: that fools no one. Jersey is on an EU grey list and you’re going to have to make the most almighty tax reforms to get off it, including introducing a corporation tax at a sensible level.’
Writing in his blog, Mr Murphy said that the Crown Dependencies – Jersey, Guernsey and the Isle of Man – would fail the economic substance test at present because corporate profits make up a much higher percentage of their GDP than places like the UK.
‘The EU Code of Conduct Group test is failed by each of them: they do provide facilities that do encourage the artificial relocation of profits without the economic substance of the related transactions that give rise to that profit being located in the islands,’ he wrote.
He added that he expected that the Crown Dependencies would need a ‘total reform’ of their corporation tax systems to meet the EU’s standards and could face ‘draconian’ sanctions if they do not.
