Jersey says it is not an 'offshore tax haven'

The story in the Financial Times (FT) claims Jersey has found a way to get around EU plans to stop people avoiding paying tax.

Under the plans, people with savings outside their home countries will have to pay some form of tax to their home governments.

However, the FT says the loophole will allow wealthy people with discretionary trusts to avoid that requirement. Jersey's Policy and Resources president says the island is complying fully with the new laws.

Establishing companies

The new EU regulations rely on either tax authorities in member states exchanging information or countries hosting accounts imposing a "withholding tax" on interest accrued on savings.

Jersey has agreed to phase in a withholding tax with various EU countries.

However, the FT said that Jersey believes individuals who establish discretionary trusts will not fall within the scope of the EU directive. Trustees who handle the individuals' assets can establish companies in Jersey that pay no tax.

These companies can in turn have bank accounts, could issue dividends for the trustees to distribute to beneficiaries, and dividends, unlike interest payments, do not fall within the EU directive's scope.

The president of Jersey's Policy and Resources Committee, Senator Frank Walker, said it was "appalling journalism" and not the sort of thing he expected from the FT.

He said: "Jersey has not discovered a loophole of any description.

"We are complying with the EU savings initiative fully."

The UK Inland Revenue said: "The UK is currently consulting on draft regulations to implement the savings directive in the UK.

"The final regulations will be laid by the end of this year to give paying agents plenty of time to prepare as the directive will not take effect before 1 January 2005.

"There are already reporting rules that apply to UK trusts and partnerships that help counter any use as avoidance devices.

"The UK also has information powers that can be used to investigate trusts and the information obtained can be exchanged with our treaty partner."

The article also referred to Jersey as a "leading offshore tax haven". The island's politicians and financiers have also reacted to this comment, saying it is an offshore low tax centre.