Impact of savings tax on Jersey

Impact of EU Savings Tax amendment on Jersey

Jersey has already refused to follow Guernsey and Isle of Man in changing from withholding tax to automatic exchange. And now it seems Jersey is hardening its attitude to amendments to the savings directive. Portraying political correctness, Jersey Finance agrees the directive contains loopholes, enabling the saving tax provisions to be easily avoided. Jersey vaguely supports the amendments on one hand yet in the same in the same breath vehemently states: Jersey is not obliged to implement the recommended changes but may consider accommodating *some* of the changes proposed A key amendment is that the present transitional arrangements that allow for a withholding tax option should be terminated three years after the introduction of the 35% rate ofwithholding tax i.e in 2014. [This is not a problem as the amendments can only be introduced by 2014 the earliest - ed] Jersey’s voluntary support in respect of the Review of the Savings Tax Directive will depend on a number of factors including: The position taken by the Member States, 3rd Countries, Switzerland in particular, and by the other dependent and associated territories; Whether the EU has been able to obtain the support of jurisdictions such as Hong Kong, China and Singapore for the adoption of equivalent measures related to the savings directive; Particularly in the absence of the required level playing field, what economic benefits would be able to be enjoyed by the Island in exchange for its cooperation; The additional burden placed on paying agents in relation to the likely effectiveness of the proposed amendments in achieving the EU's desired objectives.	Jersey Finance position statement dated Jan 2011 Jersey's conditional agreement, based on prior acquiescence by China, Hong Kong and Singapore, is bizarrely unique as not even Luxembourg makes such demands. The belief by Jersey that it won't be obligated by the UK to adopt the directive amendments or will be able to cherry pick only some of the changes is staggering. For instance, Jersey would love to leave out the extension to entities and legal arrangements or all collective funds, which will capture 97% of the loopholes Jersey deciding on which clauses to accept, based on its perception of the amendment's effectiveness is letting the fox decide which chicken coop it wants to guard.
Reason why Jersey opposes the Amendments
A cup of tea * * number 3 * * Due to the loopholes, only 3% of interest earned in Jersey by EU residents is currently subject to savings tax. Who can blame them for wanting to continue the game?
Discretionary Trusts It is estimated that 95% of trusts are discretionary, which to date have avoided the savings tax directive. The amendments will appoint the Jersey trustee as Paying Agent Upon receipt with responsibilities to apply the savings tax provisions. The principal settlor will be deemed the beneficial owner, irrespective if the settlement is irrevocable. This concept is similar to a US grantor trust. If the principal settlor is not identifiable, e.g. deceased estate, then the trust must keep track of interest earned and apply the savings tax when a beneficiary becomes entitled to the payment within 10 years. Note that the use of a nominee settlor is looked through as per the EU money laundering directive. A nominee agent is regarded as a trust & company service" and is candidate to being a Paying Agent Upon Receipt to identify for whom they are acting. Refer to how Liechtenstein trusts and foundations will be in scope.	Note: Some Jersey trusts have indicated that they will simply appoint a Singapore trustee for a Jersey trust to avoid Paying Agent Upon Receipt responsibilities. The EU Commission has categorically said that this is tax abuse as there is no commercial justification for appointing an out of jurisdiction trustee for a Jersey trust, besides evading the directive and if Jersey tax authorities accept this blatant tax evasion, the EU Commission will legally object.
Foundations Refer to how Liechtenstein foundations will be in scope.
Collective investments Undertakings for collective investment or other collective investment funds or schemes that either are registered as such in accordance with the law of any of the Member States or of the countries of the European Economic Area which do not belong to the Community, or have fund rules or instruments of incorporation governed by the law relating to collective investment funds or schemes of one of these States or countries. This applies irrespective of the legal form of such undertakings, funds or schemes and irrespective of any restriction to a limited group of investors of the purchase, sale or redemption of their shares or units entities having exercised the option under Article 4(3)	All collective investments: This in effect encompasses all collective investments, no matter the legal form or restriction. This is aimed at non-UCITS funds, such as: Luxembourg SICAV II, SICAR, SIF-SICAV Ireland UCITS-III collective investments Investment Company with Variable Capital / OEICs Professional investors funds Qualifying investors funds Caribbean non-UCITS equivalent funds Hedge funds Private equity funds Income trusts Manged Futures Accounts which act like a mutual fund for more than one investor Micro finance funds Pooled private investment clubs Mutual funds Closed end funds Unit trusts Fonds commun de placement Beleggingsvennootschap met vast kapitaal / PRIVAK Exchange Traded Funds (ETF) Real Estate Investment Trusts (REIT) Listed investment company, etc. .
Legal entities Untaxed companies managed in Jersey will become paying Agents Upon Receipt. The management will have to identify beneficial owners of the company according to the 3rd EU money laundering and anti terrorist financing directive . The Beneficial Owner of a company is any shareholder who owns more than 25% equity of a company; or alternatively it is the natural person who exercises control over the management of a legal entity: Note the oldest trick in the offshore world of using nominees to either hold shares or act as a director will no longer be feasible. The money laundering directive states that nominees used to hold shares or act as management on behalf of a beneficiary, are themselves "trust and company service providers" and are consequently candidates to be Paying Agents Upon receipt. In the event that a beneficial owner cannot be identified, then the principal contributor of assets giving rise to the interest is deemed to be the beneficial owner. If the principal contributor is not identifiable, then the company becomes a Paying Agent Upon receipt and must apply the savings tax provisions on any beneficiary who becomes entitled to the assets within 10 years of the company's receipt of the income.	Identifying beneficial owners of Jersey Limited company
Expanded interest definition: Capital protected structured notes Sharia deposits Derivatives linked to interest Insurance policies Unit linked With profits Annuities - Fixed, certain, temporary, variable

- EU Savings Tax Expert -
Although I regularly consult with the EU Commission, not all my interpretations of the directive have been confirmed by them.