Comment: ‘Paradise lost in translation’
Since the global financial crisis in 2008, offshore jurisdictions have been a target of choice by politicians and others who have occasionally needed a convenient and believeable scapegoat, usually for money believed to be missing.
Much has changed in these places over the past nine years, particularly in some, which are said to meet higher standards for transparency than the G20 countries in which some of their loudest critics are located.
And yet, as the recent furore over the Paradise Papers has shown, even signing up to the OECD’s Common Reporting Standard, which calls for automatic exchange of information, beginning either this year or next, has done little to silence the so-called international financial centres ‘(IFCs’) critics.
Here, Geoff Cook, chief executive of Jersey Finance – which promotes financial services on Jersey, which most experts say is one of the most compliant of the offshore/IFC jurisdictions – and a long-time observer of the cross-border financial services scene, shares his thoughts on the matter.
Recent media coverage of the ‘Paradise Papers’ has drawn unwarranted negative attention to activity in Jersey and the other international financial centres.
Once again, and disappointingly, the efforts by many media organisations to paint all offshore activity as secretive and founded on abusive tax avoidance is both misleading and one-sided. It doesn’t reflect the true picture, and it neglects to mention the vital role that IFCs play in encouraging international investment, which has a positive effect on countries across the globe.
It’s a shame, because in this geopolitically unstable world, having sensible conversations about global trade, overseas financial flows and cross-border investment would be really helpful.
Instead, this theft of data – the only act of criminality that I can see thus far in this whole campaign – has been used to once again reinforce outdated stereotypes about offshore jurisdictions.
As far as Jersey is concerned, we are doing what we can to counter the allegations made in this poor media coverage, and reiterate to the world Jersey’s true goal – which is to work with businesses and governments to encourage clear, forward-thinking investment that supports wealth creation and has positive impacts on communities worldwide.
‘£500bn of foreign investment into the UK’
It’s a goal that we know we are achieving. For instance, activity in Jersey contributes around £5bn (US$6.62bn, €5.64bn) to the UK in tax revenue, and helps facilitate £500bn of foreign investment into the UK and almost €200bn in the rest of the EU each year – and in so doing, supporting hundreds of thousands of jobs in these and other countries that otherwise wouldn’t exist.
We can do that because our tax neutral platform enables investors and businesses to work efficiently and transparently, pooling their investments with different investors from different countries to put their money to work.
The concept of morality has come up regularly in debates around the Paradise Papers, and I would argue that actually Jersey has a very strong moral position.
First, because what Jersey is doing is undeniably positive – taking clean, disclosed investor capital, putting it to work and creating wealth, growth and jobs in all corners of the world, benefiting the many, not just the few.
And second, because we’ve got a very honest, ‘tax neutral’ system that doesn’t rely on the kind of complicated tax model that some other countries operate. Our system ensures that tax is paid where it needs to be paid – we leave all the profits on the table for the country with taxing rights to tax it in full, it’s just that Jersey doesn’t take any of that tax for itself.
It’s a transparent system that, far from enabling abusive tax avoidance, is actually enabling countries to tax their citizens properly.
In fact, through the Common Reporting Standard (CRS), we proactively provide countries with information enabling them to collect the tax.
Our latest piece of research is a case in point – it highlights, for instance, why pension funds in countries all over the world, from the USA and the UK, to Sweden and South Korea, all make use of Jersey’s tax neutrality.
Pension funds are exempt from paying tax, but some jurisdictions add another layer of tax when pension funds invest in different countries. So, investors choose Jersey when pooling their money with other investors – they benefit from the private equity and real estate expertise available here for making their investments – which ultimately means better returns for the fund and more money in the pot for those millions of ordinary people around the world saving for their retirement.
So, Jersey is attractive to investors not just for tax reasons, but also because of our expert workforce.
It’s entirely normal, entirely transparent, and entirely reputable.
While we’re on the subject of tax avoidance, HMRC estimates that of the £34bn UK tax gap, just 5% is attributable to any form of tax avoidance. The bulk is down to tax returns not being completed correctly, VAT and excise fraud and the moonlight economy.
Of course, should there be evidence of any abusive tax avoidance in Jersey, then the authorities here would act. So far, though, we have not seen any evidence of a Jersey firm being involved in such practices in any of the stories highlighted in the media.
Neither is the work done in Jersey secretive, because we do all this in one of the best regulated environments anywhere in the world. The rules and regulations around cross-border finance can be complicated, but our focus on providing clarity means that Jersey’s finance industry is actually keeping things simple.
Jersey remains one of the best regulated international finance centres, recognised by some of the world’s leading bodies including the OECD.
The likes of the International Monetary Fund, the World Bank and MONEYVAL have also all seen fit to grant us their endorsements.
Moreover, we have signed up to all cooperation and information sharing mechanisms, including BEPS (base erosion and profit shifting and the CRS; plus we have a central register of beneficial ownership that meets international standards, to help share information with tax authorities globally.
Overall, therefore, the narrative that offshore finance is somehow responsible for social injustice and inequality around the world is just not honest.
True, the world of finance generally has a lot to do to win back the trust of a public that has endured a tough decade, the result of the global financial crisis, but to lay blame at the door of IFCs misses the point.
Do we want to live in a world where foreign investment is encouraged in local high streets, towns, shopping centres, health institutions and businesses, and where we have access to investment opportunities around the world that can provide returns for our families and retirement?
Or do we want a world where investment is restricted, less diverse, and delivers low returns?
I know which one I’d prefer, and Jersey is very much part of making that – the former – happen.
Let’s not get caught up in this media wave, and let’s make sure the true, positive value of what we do here doesn’t get lost in translation.
Geoff Cook has been chief executive of Jersey Finance since January, 2007.