The British Overseas Territories and Crown Dependencies should no longer be considered 'tax havens', according to UK prime minister David Cameron, but Fiona Le Poidevin of Guernsey Finance wonders whether this will be the death knell for that label.
The debate surrounding international finance centres (IFCs) at the G20 meeting in St Petersburg in September was largely overshadowed by discussions regarding the crisis in Syria (see my last blog preceding the summit: Lights, camera, action). This is not surprising given the gravity of the situation and even less so when we consider that the IFC debate didn't really unearth anything new.
The G20 leaders reiterated support for the OECD's action plan and road map on base erosion and profit shifting (BEPS) - what it describes as "legal tax avoidance" - and a global model for automatic exchange of information, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which is more directed at (illegal) tax evasion.
This didn't really move the debate any further forward from the G8 summit, which was held in Northern Ireland in July, after which Guernsey, among the other British Overseas Territories and Crown Dependencies, committed to adopting the convention. Indeed, perhaps the most significant outcome from the G20 meeting came a week afterwards in the House of Commons in London.
Responding to a question from Labour MP Fiona O'Donnell, following his statement on the summit, UK prime minister David Cameron said: "I do not think it is fair any longer to refer to any of the Overseas Territories or Crown Dependencies as tax havens. They have taken action to make sure that they have fair and open tax systems.
"It is very important that our focus should now shift to those territories and countries that really are tax havens. The Crown Dependencies and Overseas Territories, which matter so much - quite rightly - to the British people and members have taken the necessary action and should get the backing for it."
Those comments followed two letters from the prime minister. In the first, written to the leaders of the British Overseas Territories and Crown Dependencies, he recognised their right to be "lower tax jurisdictions". The second one was addressed to Guernsey's chief minister, Peter Harwood, and praised the island's leadership in meeting international standards of transparency and exchange of information for tax purposes.
Of course we welcome these comments and, in particular, the reference in the House of Commons that the island should no longer be considered a tax haven. However, it is our belief that the tax haven label has not applied to Guernsey for quite some time. Indeed, I mentioned in my last blog that in Northern Ireland 'national action plans' about beneficial ownership were agreed, although Guernsey has had equivalent standards in place since 2000.
In addition, while some jurisdictions are only now moving towards automatic exchange of information, this is something that Guernsey has embraced since 2011 under measures equivalent to the EU Savings Tax Directive. Guernsey has also agreed in principle and is well down the path to signing a Model I agreement with the US in relation to the Foreign Account Tax Compliance Act and a similar equivalent agreement with the UK.
Guernsey also meets the European Commission's criteria for what is not a tax haven. It says that a third country cannot be considered a tax haven if it implements the international standard for transparency and exchange of information and does not operate tax measures that are considered harmful in business tax matters. The island satisfies these criteria and, therefore, is clearly not a tax haven in the view of the European Commission.
So, although we give a qualified welcome to the prime minister's comments, it remains to be seen how much impact they will have in the longer term. We would be naïve to think that the media and the wider public will now stop referring to us as a tax haven and indeed, we may struggle to ever escape the tag completely. But this is a start at least and is something on which we need to build.
The financial crisis has provided the catalyst to the re-emergence of what is a dangerously short-sighted view of IFCs, such as Guernsey. The island is highly reputable and our financial services industry facilitates investment and employment in the UK economy. We are part of the solution. We are part of the fabric that helps to drive forward our British society.
An original version of this blog was by published by Private Client Adviser, October 2013.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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