There are many reasons why today, Jersey should be regarded as a preferred corporate and trust domicile for clients investing in the UK, or who are UK resident. Some of these reasons are of long-standing:
1. Jersey is rightly upheld as a jurisdiction that offers excellent, contemporary corporate and trust laws
2. Jersey has a strong regulatory environment (which produces the highest degree of professional corporate trust governance and professional accountability)
3. Jersey has a world-class professional infrastructure. There is a wide choice of international law and accountancy firms to support Jersey companies and trusts (and the trust companies that administer Jersey entities) in what is an increasingly complex tax and regulatory environment
4. Jersey companies and trusts are subject to the ultimate supervision of the Jersey Courts. The Jersey Courts are rightly regarded by well-informed international advisors and their clients as independent, and entirely impartial. This is particularly important for clients who may become settlors of substantial trusts and who may need to be persuaded to allow Jersey trustees to control hard-won assets for reasons of good tax or succession planning. It is easier to persuade reluctant settlors by demonstrating that Jersey trustees of Jersey trusts or Jersey directors of Jersey companies are ultimately supervised by and accountable to the local courts of Jersey. Many of the judges sitting in the Jersey courts are English-trained lawyers. Moreover, the final court of appeal from the Jersey Court of Appeal is the English Privy Council. All this infrastructure is unlikely to be needed, but it is all very reassuring.
5. The proximity of Jersey to the UK is convenient where substantial UK assets are being acquired by Jersey companies - enabling Jersey directors or trustees to instruct UK lawyers in acquiring the UK assets quickly and efficiently.
These reasons are all compelling and have been applicable for many years. However, today there are additional reasons to prefer a jurisdiction such as Jersey, rooted in UK legislation related to penalties for tax misconduct.
Errors in UK tax returns, whether careless or deliberate, are subject to tax penalties which increase according to the level of culpability. The full scope of this legislation is too detailed for a general article of this kind; however, the table below shows how penalties increase according to the type of offshore jurisdiction involved in a non-compliant UK taxpayer's affairs. Offshore jurisdictions are categorised as either 0, 1, 2 or 3 territories under the penal legislation. The percentages refer to the amounts of UK tax put at risk by the misconduct.
Category 0 territories include territories that have signed up to the Common Reporting Standard, which includes Jersey and the other two British Crown Dependencies.
Category 0 offshore territories are treated equally with the UK itself so far as careless errors are concerned, whereas the other offshore territories in categories 1 to 3 are subject to higher discriminatory penalties where "offshore matters" or "offshore transfers" are involved (these two terms are statutorily defined). There are also separate and additional penalities for the "offshore asset moves" (resulting in an additional penalty of 50% of the orginal misconduct penalty) and asset-based penalities for deliberate msconduct involving an offshore matter or transfer.
There are also new penalties under the "Requirement to Correct " regime; fixed GAAR penalties; new strict liability criminal penalties for failure to disclose chargeability to offshore income, assets and activities; new civil penalties for " enablers " of offshore tax evasion or non compliance; and new criminal sanctions against " facilitators " of tax evasion.
The upshot of all this is that the case for obtaining proper tax advice, and then navigating safely through these risks by placing assets in the hands of responsible trust and corporate professionals in Jersey (or other jurisdictions that have signed up to the Common Reporting Standard e.g. BVI and Cayman), is now a "no-brainer".
Clients who use category 0 territories such as Jersey greatly reduce their risks of inadvertent misconduct, because Jersey professional trust and corporate service providers such as Vistra insist on full management of the affairs of the Jersey company or trust being set up. This will include engagement of appropriate UK tax expertise to ensure the Jersey company and/or trust structure complies with its UK tax obligations, including obligations to file returns to HMRC. To end this section on a more cheerful note, errors in tax compliance that are neither careless nor deliberate, are not subject to penalties. Furthermore, given the incredible complexity of UK tax law today, the scope for reasonable error is arguably much wider than it once was.
Those investing in the UK via offshore company and trust structures are well advised to consider the use of Jersey as their corporate or trust domicile. This is primarily because of the legal resources and expertise of Jersey, and its strong regulatory code which has resulted in very high standards of corporate and trust governance –a real protection for clients using offshore structures. Jersey's "category 0" status under the UK legislation governing penalties for careless and deliberate error in tax compliance reflects it's reputation for transparency, and is a real mitigation of UK tax risk. Given the complexity of UK tax law applicable to foreign investors and UK resident "non-doms", management of Jersey structures by well-resourced international organisations like Vistra in Jersey provides valuable protection and security for clients. Arguably the costs and other risks of getting it wrong in this area are now so substantial that only category 0 territories should be considered as appropriate where UK tax planning is being undertaken. Similar comments apply to other category 0 territories such as BVI and Cayman.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.