The fall of Jersey: how a tax haven goes bust
theguardian.com
theguardian.com
This was the turning point for Jersey, in case you missed it in a fairly long piece.
I wonder why Jersey didn't simply raise the corporate tax rate to 1%, and lower its citizens taxes to 1%. They still would have come in far below most of the rest of the world in corporate tax rates[1], but would have wildly increased their revenues.
As it happens, they ended up losing their financial industry anyhow.
[1]https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates
http://www.newstatesman.com/economy/2011/02/london-corporati...
What the "city" may well get is favourable interpretation of complex ambiguous tax arrangements. That's the argument against e.g. Vodafone. What the "city" is afraid of is changes in EU law that seem highly technical but have the effect of damaging its business. The Tobin tax is one example.
(London in general benefits from the stupid way property tax is done in the UK with finite "bands", so a family house and a multistorey mansion pay the same annual tax, but that's a separate issue.)
https://www.youtube.com/watch?v=LrObZ_HZZUc
Along with another video about the governing structure of The City of London.
If you can pay 1% or 0%, and it doesn't really matter where the company is based, which one do you pick?
Taxes are a cost of doing business, and yes, businesses will optimize that cost wherever they can, but paying 1% less in taxes isn't a bargain if it increases your costs or lessens competitive ability elsewhere.
- What about Guernsey? Are they screwed as well? How can you write an article about one half of a pair of twins without mentioning the other half? A fund I used to work for had a guy sitting there pretending to make trading decisions, precisely for the tax advantage.
- Lived on Jersey for a bit. It was like a little piece of Surrey, on an island. Lots of expensive cars. Nice country pubs, good views in places. Roads are too narrow. A bit like an early version of GTA though: although there are variations, you quickly discover how small it is.
- As a finance guy I never realised how bad the Dutch disease got on the island. I did realise there were an unusual number of lawyers and accountants. But I never thought it was as bad as it turns out.
These territories need to be given an ultimatum become part of the UK and implement UK tax laws or remain independent and be 100% responsible for their own affairs.
Edit: Amazon and Play.com used to operate out of Jersey to avoid VAT being charged on orders [1].
[1] - https://en.wikipedia.org/wiki/VAT-free_imports_from_the_Chan...
(Also the Channel Islands are not fully within the EU https://en.wikipedia.org/wiki/Jersey#Relationship_with_the_E... )
I can only imagine their current relationship with the UK is with their (UK) accord.
[1] - https://www.gov.je/Government/JerseyWorld/InternationalAffai...
And so does the EU.
As for taxes, people on Mann get screwed over on prices - everything from groceries to petrol is more expensive than the north of England since it has to be shipped in. The tax breaks for residents are less than for corporations too, without the corporate breaks I think there would be less work there in general. Might get rid of the southern English bankers that all moved there in the 2000s if they removed so many incentives so it wouldn't be a complete loss ;-)
I can assure you that the North is one of the cheapest places to live in the UK. I could rent a huge, 4 bedroom house in some places for less than I'm renting a single room in London. Out of interest how much is petrol/groceries? What popular UK brands do you have over there that could be compared?
[emphasis mine] The Isle of Man is off the north west coast of England, so he's comparing the prices there with the nearest mainland.
Wikipedia says its a Crown dependency - how is that different than being part of the UK?
I would love to hear more -- because how can IoM avoid Jersey's fate?
No. The IoM isn't a sovereign state, although it has it's own legislative branch.
>Wikipedia says its a Crown dependency - how is that different than being part of the UK?
They don't have representation in the UK, other than the Lieutenant Governor. They have their own passports, currency and taxes. The UK can pass laws that affect the Crown Deps but they generally don't do so without consent.
>I would love to hear more -- because how can IoM avoid Jersey's fate?
IoM has diversified it's sketchy revenue creating beyond tax evasion and avoidance of UK banks by also issuing becoming a haven for the UK/Ireland gambling industry.
Crown dependancies are self governing, though the UK has ultimate responsibility and control. The UK usually leads in defence and diplomacy. The extent of UK involvement and precise details vary from dependency to dependency.
It looks like a system of whatever works and not upsetting an apple cart.
This mostly explains things:
Only for the EU. As a Manxman you have a nice one-way street of benefits working in the UK...
>Manx people, as British Citizens, may travel and work freely in the United Kingdom.
However myself as a British citizen cannot take a ferry from Liverpool to the IoM and start work. But the reverse is entirely possible for yourself.
We need a full reform. This is a small part of it.
Yes they get some benefits from that agreement such as military protection which didn't help them much during WWII where they became occupied by Germans.
Still I found this article very poorly-written, poorly-researched, sensational, weighed down by anecdotes, cliches and an exhausting "Poor UK, evil Jersey" pattern. It gets worse as the piece goes on, increasingly opinionated and accusatory.
I am not an expert, but I sense that very many factors went into creating the situation there, many of them outside forces, and it's not possible or helpful to caricature an entire island in this way to look for a simple cause and effect relationship.
Perhaps there are some important specifics that you would like to contribute, rather than just criticising the article's tone.
I'm being a bit tongue-in-cheek here, but your repeated claims that taxes are too high presupposes some objectively correct level of taxation. In the real world, what happens is that tiny poor jurisdictions set tax rates that would be economically unsustainable but for the prospect of attracting some huge international firm whose revenues are so big that even a tiny percentage of them is a lot of money for the poor jurisdiction, and the extra administrative costs of domiciling the corporation there are less than the difference between the unusually low tax rate and that of a more economically logical place for the headquarters, based on actual factors of production.
Why should taxes come down to the level of whatever the poorest country is willing to charge in order to attract itinerant capital? Why not (as we are sort-of in the process of doing) just deny market access to firms that don't want to pay prevailing rates?
It's not that I hate capital as such, but as an individual I have to pay some sort of taxes and my international economic movements are somewhat restricted, because of the basic fact that people can impose costs on an economy as well as contribute to it. I'm not enthused about paying taxes on the income I receive in return for my work product, but I recognize that there's a quid pro quo here as I prefer to live in a civilized society and transact business using money rather than live in a cave and subsist on fish or something. I don't care for the idea that having a large sum of capital should exempt one from these rules, in addition to the obvious economic advantages that said capital provides (and which I slightly envy but do not resent).
An example: a friend who often travels to the UK asked his local bank if he could get a GBP denominated credit card (+ settle it in GBP). Wasn't possible. He opened an account in Jersey (or Guernsey, can't remember), where this wasn't a problem.
It doesn't really make the counties any more prosperous. Firstly you can't really just ban tax havens because then people would move money to countries that are not havens but just happen to have lower taxes in some area (eg. Ireland for corporate tax, Belgium for cgt). Then if you restrict money going in, outside investors are wary of bringing any money in. So you kind of end up like the UK in the 70s when they had exchange controls, high unemployment, strikes etc.
There are smarter ways to stop offshore avoidance. Usually enforcing the existing laws more thoroughly which is partly what's happening to Jersey - I have a Jersey bank account and get occasional letters about how they are being forced to declare it to the EU/UK tax authorities.
Basically, what I'm questioning is whether the tax haven is Jersey's doing at all. Of course they are complicit but I don't think that it's up to them to decide to be a tax haven.
It should be no surprise today's largely secular laws don't know how to deal with 15th-century papal bulls.
(I suppose the practical answer is that that British rejection of the papal bull would invite the French to interfere militarily or even annexe islands much closer to their own shores than mainland Britain, and frankly any negative side effects of the in-between status historically weren't worth the cost of the warships to guard them)
In practice the day to day running of the Channel Islands is left to what's called the Privy Council, but the Queen gets final say.
Parliament isn't involved.
If the Queen objected strenuously to Jersey's role as a tax haven, it would never have become one.
Jersey is one of those edge cases where the feudal nature of the British establishment becomes obvious. Parliament isn't quite only for show, but a lot of wheeling, dealing, and money hiding goes on behind the scenes. Neither the British parliament, nor City regulators, nor the EU have much oversight.
I always thought that the Queen was reduced to a figurehead status.
You then couple this legal patchwork with Common Law and a formalized-but-not-quite-fully-consistent parliamentary process, evolved day-by-day over several hundred years, and you can understand how very few people at any given time actually know who really should be in charge of this or that. What matters is that the right someone should be considered in charge at the right time on the right matter, correctness be damned. It's an extremely pragmatic stance on Power: it decouples highfalutin declarations of what Power is and where it comes from, in favour of simply making sure that Power exists and can be exercised for everyday purposes by trusted insiders without facing a riot.
The current system has been running continuously for more than 300 years (and it's not incredibly different from the one it replaced, which was almost 600 years old at the time). Imagine maintaining a custom backend for 300 years, piling hack over hack because you're never allowed to rewrite it all from scratch. That's what the British system basically is.
But going back to your question: of course the Queen is a figurehead, but it's because she decides to be so, as British monarchs have done since the Glorious Revolution. In theory, she (or her heirs) could, at any time, try to force the constitutional compromise, reasserting everyday powers that today are in Parliament hands (the list grows longer every year, as it often happens with elderly rulers)... but there is really no reason for her to do so: she is well looked after, paid handsomely to basically be a 365/24/7 global PR representative for her country, and allowed to own a large amount of wealth and property, some of which she (or rather her heirs) can directly manage and profit from (Duchy of Cornwall etc). Why would you give up all that and precipitate a disastrous conflict and potentially a civil war? For some misplaced pride of power, at 89, after having seen through (and won) the Cold War?
So the powers stay there, she just doesn't use them (and would likely be rebuffed if she tried too hard to); she exercises influence were strictly necessary and that's enough to keep everyone happy. It's a bit like owning nuclear weapons without ever using them.
This whole setup is also the reason some people still worry about the return of "activist" monarchs. HRH the Prince of Wales at various points tried to wield his unwritten power a bit... ungraciously, stoking these fears, but he seems to have recently accepted that his reign will be too short to really worry about, so we should be ok.
People all over the world would be better off if The City is crushed.
You're confusing creating value with economic velocity. Mere ownership cannot create value. Mere ownership can change the rate at which money circulates in the economy.
This is why capitalism works far better than the alternatives.
My point is that labour does not need capital to produce value (Although access to capital can increase the amount of value labour can produce.) Capital without labour is, quite obviously a lame duck.
Crediting the super-rich (A very few exceptions aside) for creating wealth is nonsense. In the best case, the people they employ created their wealth - said people just ended up keeping less/spending more of it. In the worst case, collecting rents created their wealth.
There was no "before capitalism".
>My point is that labour does not need capital to produce value (Although access to capital can increase the amount of value labour can produce.) Capital without labour is, quite obviously a lame duck.
Labor without capital is the same duck. Creating a business is risky, and someone has to be on the hook for that risk.
>Crediting the super-rich (A very few exceptions aside) for creating wealth is nonsense.
The super-rich are a sideshow. Most "capitalists" out there are people like you and me putting money into their 401(k) every paycheck.
i.e. "it's my land because I live here and work on it" vs "it's my land because I own a title deed as recognised by some authority".
Sure they did, at sustenance level. Or do you think that the noncapitalist economy of preindustrial Europe could produce enough widgets to sustain the modern standard of living?
>My point is that labour does not need capital to produce value (Although access to capital can increase the amount of value labour can produce.) Capital without labour is, quite obviously a lame duck.
This is looking more and more false by the day, to be honest. At this point, companies that employ hundreds of thousands of assembly line workers that produce "actual value" are less profitable than companies that automate that same assembly line using capital. On the flip side, the return to human capital in the form of educated workers has certainly increased.But I challenge you to build Google or Facebook without the venture CAPITALists who provided the money to purchase the infrastructure and hire the labour. The knowledge economy is great, but at some point the software still has to run on hardware purchased with, you guessed it, capital.
The point being that capital and labour are both necessary for a functioning economy, and concluding that labour is the only thing that matters and that anyone rich must be a rent-seeker leads you to becoming Venezuela or Argentina.
Tech is one of the industries they're trying to get involved in.
In legal terms I honestly don't know, but after Snowden I thought we agreed that the law is no obstacle for these people.
I was asking more about the legal situation, whether they have enough independence to enact laws to prevent the authorities making "inside" attacks such as:
* Forcing operators to identify customers
* Forbid the operator from telling their customers about anything
* Take hardware without allowing it to be destroyed beforehand
These things could still happen illegally of course.
fuhgeddaboudit!
"Olde" would be acceptable, too.
That's just England, not including the rest of the UK.