Jersey: Tax Haven or Offshore Financial Center? Or Both?

By Austin Trummel

Just beyond the northern coast of France in the Gulf of Saint-Malo lies the humble island of Jersey. As a British Crown Dependency, it is self-governing but not quite a sovereign state (akin to Puerto Rico).[1] The entire island is a mere 45 square miles and harbors a population of just over 100,000 people.[2] On most maps of Europe, Jersey is nothing more than a speck in the English Channel, if the map is even detailed enough to include it. It is hard to believe that such a small nation—whose nationhood comes with an asterisk—is actually one of the world’s biggest international players in offshore finance.[3]

BACKGROUND

Understanding Jersey’s hidden prominence requires an understanding of tax havens and offshore financial centers (OFCs). A tax haven is a nation that offers little or no tax liability to companies and/or individuals, and generally lacks financial transparency.[4] Tax havens are usually found in small, relatively underdeveloped nations whose goal is to attract foreign business.[5] An OFC is a region where there is substantial business activity mostly transacted by foreign parties, and non-residents control most of the firms.[6]

There is consensus that Jersey is a tax haven, and for obvious reasons. Corporate income tax is generally taxed at a rate of 0 percent, and financial service companies such as banks are only taxed at 10 percent.[7] Individuals are taxed at a flat rate of 20 percent with an additional 1 percent on all income over 725,000 euros (approximately $850,000).[8] But, regardless of whether one thinks that is high or low (it’s low), how Jersey taxes its citizens actually has little bearing on its regard as a tax haven. The goal of tax havens is to attract foreign business and foreign investment; look to a country’s corporate tax rate in your haven evaluation.  As previously mentioned, Jersey’s corporate tax is a big, fat, juicy donut.[9]

And foreign investors and businesses, unsurprisingly, want a bite of it. PricewaterhouseCoopers (PwC), the second largest professional services firm in the world, has “significant experience” assisting business relocation to Jersey and “deep local relationships” on the island (again, we’re talking about a 45 square mile island nation with a population of about 100,000!).[10] It is easy to see why the label of “offshore financial center” has also been attached to Jersey.  

The less savory title has been attached to Jersey as well. In 2019, BBC described the Channel Islands (the islands of the English Channel, which includes Jersey) as being among “the worst tax havens worldwide.”[11] The Tax Justice Network has a Corporate Tax Haven Index, which ranks the jurisdictions “most complicit in helping multinational corporations underpay corporate income tax.”[12] Jersey ranks number 8 in the world, with a Haven Score of 100/100.[13] Not a good look.

Yet, other sources do not see Jersey as a financial scoundrel. “There is more to Jersey than just low taxes . . . it is Jersey’s expertise in specialist wealth management and financing techniques, its favorable regulatory regime, good international reputation, and high quality financial infrastructure that are drawing investors to the island.”[14] According to PwC, “the island is in the top tier of Offshore Financial Centres and has deliberately positioned itself as a well regulated and cooperative offshore jurisdiction.”[15] The International Monetary Fund (IMF) placed Jersey in its “Group I” of offshore financial centers, denoting Jersey as cooperative, supervised, and adherent to international standards.[16]

ANALYSIS

While the definitions of an offshore financial center and a tax haven differ, they tend to coincide. In its definition of OFCs, the IMF noted they usually “provide some or all of the following: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.”[17] Although the IMF was describing OFCs, those features are literally the precise definition of a tax haven.

It is not hard to see why OFCs and tax havens become one and the same. If a nation enacts tax laws very favorable to foreign business (thus becoming a tax haven), foreign businesses will come. When foreign businesses come, they obviously start doing business. Demand for international business professionals arises. The professionals come, and all of a sudden you have an offshore financial center. OFC is the status small, developing nations strive to achieve when they enact tax laws seeking to attract foreign business. Only, once the nation has begun to be regarded as an OFC, the tax laws usually are not reformed—doing so would jeopardize the influx of foreign business. Ultimately, the only difference between a tax haven and an OFC is the connotation of each. If I were a Jersey financier, I would refer to the island as an offshore financial center. But if I were a prosecuting attorney for the IRS, I would call Jersey a tax haven.

CONCLUSION

Jersey’s nationhood status—or lack thereof—is the primary discourse about Jersey’s identity. But its status is as a tax haven and/or offshore financial center presents a far more fascinating discussion with international implications. Tax havens and offshore financial centers are two sides of the same coin. The amount of business activity in Jersey is incommensurate with its size and population, and the shocking proportions are not only found in Jersey. There are dozens of small island nations around the world boasting robust international business activity, overlaying lax tax laws. It is one of the world’s best-kept secrets.

[1] Lowtax Editorial, Jersey – The Model of A Modern Offshore Financial Center, Wolters Kluwer (2017), https://www.lowtax.net/features/Jersey--The-Model-Of-A-Modern-Offshore-Financial-Center-574351.html.

[2] Id.

[3] Id.

[4] Will Fitzgibbon, What is a tax haven? Offshore finance, explained, International Consortium of Investigative Journalism (2020), https://www.icij.org/investigations/panama-papers/what-is-a-tax-haven-offshore-finance-explained/.

[5] Id.

[6] Offshore Financial Centers, International Monetary Fund (2000), https://www.imf.org/external/np/mae/oshore/2000/eng/back.htm.

[7] Tax & Contributions in Jersey, Locate Jersey (2021), https://www.locatejersey.com/living-working-in-jersey/tax-contributions/.

[8] Id.

[9] Id.

[10] A less taxing move, PwC (2017), https://www.pwc.com/jg/en/tax/a-less-taxing-move-high-net-worth-individuals_jersey.pdf.

[11] Channel Islands ‘among worst tax havens’ worldwide, BBC (2019), https://www.bbc.com/news/world-europe-jersey-48354081.

[12] Corporate Tax Haven Index, Tax Justice Network (2021), https://cthi.taxjustice.net/en/.

[13] Id.

[14] Lowtax Editorial, Jersey – The Model of a Modern Offshore Financial Center, Wolters Kluwer (2017), https://www.lowtax.net/features/Jersey--The-Model-Of-A-Modern-Offshore-Financial-Center-574351.html.

[15] A less taxing move, PwC (2017), https://www.pwc.com/jg/en/tax/a-less-taxing-move-high-net-worth-individuals_jersey.pdf.

[16] Offshore Financial Centers, International Monetary Fund (2000), https://www.imf.org/external/np/mae/oshore/2000/eng/back.htm.

[17] Id.