Jersey and Guernsey fighting for a level playing field on UK's "mini FATCA"

The Chief Ministers of Jersey and Guernsey have issued a joint statement on developments relating to the UK Government’s attempts to introduce a “mini-FATCA” whereby the Crown Dependencies and Overseas Territories would be required to report assets for UK individuals to the UK authorities, in much the same way as the US government requires for its citizens under FATCA.

The fact that the UK is seeking to do this is no great surprise – there has been a whole series of initiatives over the years which are moving inexorably towards automatic data exchange, and most in the industry regard this as inevitable at some point in time.  Although there are vocal arguments that the costs of such arrangements are likely to be disproportionate to amounts collected in additional tax revenue as a consequence, there are equally those in the business who would welcome an opportunity to prove that the onshore jurisdictions are wrong to label the offshore centres as havens for tax evasion, and who resent the fact that the UK media consistently portrays them as such.  However, in my view the real risk for the Islands is that they are required to begin reporting well before other countries are – as it creates an uneven playing field in terms of cost and administrative burden, which will likely result in the flight of business to locations which can offer their services more simply and cheaply.  In short, the clients will disappear to less reputable locations, which does not serve the interests of HMRC, the Overseas Territories, the Crown Dependencies or, indeed, the clients themselves. 

It seems from the statement released by the Jersey and Guernsey authorities that they have decided not to fight the basic principle of reporting the information:

“As communicated last week, officials from Guernsey, Jersey and the Isle of Man continue to engage with US officials, aimed at concluding Intergovernmental Agreements under the US FATCA regulations.

We also share a common commitment with the UK to combat tax evasion and to participate in international efforts to combat financial and fiscal crime. We have long made it clear that neither Island has any wish to accommodate those engaged in tax evasion.”

However, Senator Gorst of Jersey added:

“The UK Government is seeking to promote more widely as a new international standard the principles of the US Foreign Account Tax Compliance Act (FATCA). Jersey considers that it is important that in doing so the UK Government mirrors the approach of the US FATCA in being global in its application, ensuring a non-discriminatory approach for all jurisdictions.  In our ongoing discussions with the UK Government we will be pressing them to make clear the steps they are taking to promote the adoption of automatic exchange of information worldwide to ensure that a level playing field is achieved for all finance centres competing in the global market place.”

It seems therefore that Senator Gorst is well aware of the risks of being at the “bleeding edge” of such initiatives, and will fight to ensure that the Islands are not singled out as being the only territories to which the rules apply.  I commend him in taking this approach, which is in the circumstances probably the only feasible option, as to resist the entire principle would leave the door open for people to conclude that the offshore centres are there to assist in tax evasion.  However, in doing this, the Islands can and should try to regain some of the initiative against those who seek to blacken the reputation of the jurisdictions unfairly.