FOR MOST people, Jersey has traditionally conjured up images of picturesque villages and coastlines, its famous cows and Jersey Royal potatoes. More recently, however, the island has found itself cast as a villain, seeking to aid multinationals and wealthy individuals to avoid paying their “fair share” of the UK’s tax burden.
Yet as a recent study by academics Richard Gordon and Andrew P Morriss, Moving Money, points out, such criticisms often rest on incomplete data and poor analysis, resulting in deeply-flawed criticisms about how money actually moves around the global financial system.
Their report illustrates how attacks on international financial centres, like Jersey, often fail to grasp the real nature of tax evasion and avoidance (most of which occurs onshore), and the reality that offshore centres are invariably highly transparent and well regulated. Jersey, for instance, adheres to the highest standards set by international bodies like the IMF and the Financial Action Taskforce (FATF), and was an early adopter in signing up to the G5 pilot on automatic exchange of tax information and the OECD’s Common Reporting Standard.
Further, critics of offshore finance deliberately overlook the many ways in which international financial centres benefit both the UK and wider global economy. Such benefits were first revealed in the government’s Foot Review in 2009, which showed that offshore financial centres make a huge contribution to the City of London’s market liquidity, in turn helping UK banks to finance the wider UK economy. In 2013, a report by Capital Economics found that Jersey alone is the conduit for over half a trillion pounds of the total stock of foreign inward investment into the UK economy. In total, Jersey helps to support nearly 180,000 British jobs.
As for the global benefits, the World Trade Organisation points out that growth in trade has caused the doubling of incomes in 10 developing countries, with a total population of 1.5bn And this is just one example. If globalisation still offers the chance to enrich the lives of billions, including some of the poorest people on the planet, boosting cross-border trade and financial intermediation should be paramount. And offshore financial centres achieve just that.
As well as examining the benefits of free trade, Gordon and Morriss analyse why people and multinationals use international financial centres like Jersey. The emphasis on tax evasion and avoidance is too simplistic an explanation, given the efficiency benefits for investors looking to avoid double taxation. Further, offshore centres are most often well-regulated market places, with Jersey offering all the protection associated with the British common law legal system.
Discussions about international business and tax policy are too important to be debated using baseless assumptions, and should be firmly rooted in economic research: reports like Moving Money make an extremely important contribution to the public debate, and will prove invaluable in moving discussions around offshore finance beyond sensationalist headlines.
Geoff Cook is the chief executive of Jersey Finance.