The Foot Review: A Report on the British Offshore Finance Centres
On 29 October 2009 HM Treasury in London published a report on the British Offshore Finance Centres, commissioned by The Chancellor of the Exchequer in December 2008 and prepared by Mr Michael Foot, a former senior Bank of England official. The report was intended to identify the long-term opportunities as well as the challenges facing those OFCs, which comprise the three British Crown Dependencies (Jersey, Guernsey and the Isle of Man) and six British overseas territories (Anguilla, Bermuda, British Virgin Islands, the Cayman Islands, Gibraltar, and the Turks & Caicos Islands), particularly following the turmoil in the financial markets during 2007 and 2008 and the subsequent impact on the world economy.
The Review notes that most of these territories are heavily reliant on financial services and that in some of the territories, economic decisions taken during a prolonged period of economic growth had weakened their ability to manage their finances during the current downturn.
The Review examines the systems of financial supervision and transparency; systems of taxation, specifically the ability of Governments in each of the territories to raise sufficient revenues to meet their spending needs; international co-operation, specifically in fighting financial crime and exchanging information on tax and other matters; and the impact of the OFCs on the UK.
The Review delivers a very favourable report on the Crown Dependencies in general and especially on Jersey. Mr Foot notes, for example, that “The Crown Dependencies make a significant contribution to the liquidity of the UK market”, going on to note that throughout the banking crisis in the UK, Jersey had been the largest provider of net deposits to the UK banking system, with net deposits with UK banks in the region of $218.3 billion in the second quarter of 2009 (at end Q2 2009, Jersey banks and other entities had placed $314.0 billion with UK banks but in turn owed $95.7 billion to UK banks). The Review also notes the significant fees and other benefits that accrue to UK based investment managers, lawyers, accountants and tax advisers through work that originates within the Crown Dependencies.
Mr Foot draws on the evidence contained in a report prepared for him by Deloitte in London to conclude that “the amount of UK tax avoided by UK corporates using the nine jurisdictions was likely to be significantly lower than estimates produced by previous studies have suggested”, thus helping to dispel some of the myths that have been put about by detractors of the British OFCs. The Review notes that whilst some of the OFCs have sought to attract business through the absence of corporate taxes or indirect taxes such as VAT, there is a “compelling case” for the OFCs to change their tax systems and introduce such taxes, in order to balance their government budgets. Jersey has a Goods and Services Tax, similar to VAT, and has announced a comprehensive review of its fiscal system, including corporate taxes. However, other OFCs will find this recommendation more difficult to accept: for example, in spite of facing a significant budget deficit, the government of the Cayman Islands is resisting pressure from the UK to introduce some form of corporate tax, whilst the government in Guernsey is resisting the introduction of GST or VAT.
Mr Foot notes in his report the recent very positive assessment by the IMF of Jersey’s financial services regulation system.
The Review has been welcomed, both in Jersey and in the UK. In London, Lord Bach, the Minister for the Crown Dependencies at the Ministry of Justice, said: “I welcome the publication of this considered and helpful review. As it recognises, the Crown Dependencies have much to be proud of in terms of meeting high international standards. This is, however, a fast changing and increasingly complex financial environment. The report is clear that there is no room for complacency and we are confident that the Crown Dependencies will continue to lead the way in terms of meeting new standards as they evolve.”
For further information on this matter, please contact Robert Christensen (rchristensen@volaw.com), Managing Director of Volaw, or Ian Strang (ianstrang@voisinlaw.com), Managing Partner of Voisin.
