
The fall of Jersey: how a tax haven goes bust - hunglee2
http://www.theguardian.com/uk-news/2015/dec/08/fall-of-jersey-how-tax-haven-goes-bust
======
padobson
_In a new code of conduct, the EU insisted that all members (as well as those
jurisdictions that wanted equal access to its market, such as Jersey) tax
local and non-local companies the same._

This was the turning point for Jersey, in case you missed it in a fairly long
piece.

I wonder why Jersey didn't simply raise the corporate tax rate to 1%, and
lower its citizens taxes to 1%. They still would have come in far below most
of the rest of the world in corporate tax rates[1], but would have wildly
increased their revenues.

As it happens, they ended up losing their financial industry anyhow.

[1][https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates](https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates)

~~~
branchless
This is why Cameron wants to have some "red lines" with the EU. He's terrified
they are going to strangle The City.

~~~
wavefunction
For those of us that are unfamiliar with the special situation with The City,
can you perhaps elaborate a bit? I'm curious to learn more about what you're
alluding to.

~~~
yoshamano
CGP Grey does a really good job giving an overview of the history of The City
of London.

[https://www.youtube.com/watch?v=LrObZ_HZZUc](https://www.youtube.com/watch?v=LrObZ_HZZUc)

Along with another video about the governing structure of The City of London.

[https://www.youtube.com/watch?v=z1ROpIKZe-c](https://www.youtube.com/watch?v=z1ROpIKZe-c)

~~~
wavefunction
Thanks!

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lordnacho
Bunch of separate items:

\- What about Guernsey? Are they screwed as well? How can you write an article
about one half of a pair of twins without mentioning the other half? A fund I
used to work for had a guy sitting there pretending to make trading decisions,
precisely for the tax advantage.

\- Lived on Jersey for a bit. It was like a little piece of Surrey, on an
island. Lots of expensive cars. Nice country pubs, good views in places. Roads
are too narrow. A bit like an early version of GTA though: although there are
variations, you quickly discover how small it is.

\- As a finance guy I never realised how bad the Dutch disease got on the
island. I did realise there were an unusual number of lawyers and accountants.
But I never thought it was as bad as it turns out.

~~~
charlesdm
Most EU venture capital funds structure holdings through Jersey or Guernsey
SPVs as well.

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hackerboos
It's always frustrated me that Jersey/Guernsey/Isle of Man get away with
reaping the benefits of being part of the UK (EU and EEC membership) whilst
not actually being part of the UK, undermining our tax system, generally
gaining from tax avoidance and evasion on the mainland.

These territories need to be given an ultimatum become part of the UK and
implement UK tax laws or remain independent and be 100% responsible for their
own affairs.

Edit: Amazon and Play.com used to operate out of Jersey to avoid VAT being
charged on orders [1].

[1] - [https://en.wikipedia.org/wiki/VAT-
free_imports_from_the_Chan...](https://en.wikipedia.org/wiki/VAT-
free_imports_from_the_Channel_Islands#United_Kingdom_2)

~~~
rquirk
The IoM isn't part of the EU or the UK. As a Manxman living in Europe, I'm
fortunate that my mother's side of the family is English or I'd have more
trouble with work permits and whatnot. I haven't been able to exchange my Manx
driving licence for a Spanish one, for example, since it isn't recognised.

As for taxes, people on Mann get screwed over on prices - everything from
groceries to petrol is more expensive than the north of England since it has
to be shipped in. The tax breaks for residents are less than for corporations
too, without the corporate breaks I think there would be less work there in
general. Might get rid of the southern English bankers that all moved there in
the 2000s if they removed so many incentives so it wouldn't be a complete loss
;-)

~~~
pm24601
So what is the IoM status? Is it a separate country?

Wikipedia says its a Crown dependency - how is that different than being part
of the UK?

I would love to hear more -- because how can IoM avoid Jersey's fate?

~~~
nly
This video (5m long) might explain a few things

[https://www.youtube.com/watch?v=rNu8XDBSn10](https://www.youtube.com/watch?v=rNu8XDBSn10)

~~~
pm24601
Thanks. OMG. What a mess.

It looks like a system of whatever works and not upsetting an apple cart.

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josscrowcroft
I grew up in Jersey, and for sure there's a lot that I don't like about the
place.

Still I found this article very poorly-written, poorly-researched,
sensational, weighed down by anecdotes, cliches and an exhausting "Poor UK,
evil Jersey" pattern. It gets worse as the piece goes on, increasingly
opinionated and accusatory.

I am not an expert, but I sense that very many factors went into creating the
situation there, many of them outside forces, and it's not possible or helpful
to caricature an entire island in this way to look for a simple cause and
effect relationship.

~~~
lovemenot
You were probably already better informed on Jersey than most of us were
before reading the article. There may have been significant details left out,
but as a broad brush I felt the article probably did a good job of presenting
a general picture of the island's economy.

Perhaps there are some important specifics that you would like to contribute,
rather than just criticising the article's tone.

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ps4fanboy
I never understood why countries do not impose huge taxes on money moving in
and out of tax havens. I guess there is always another route you can take to
disguise the origin.

~~~
briandear
Why? The money doesn't belong to the government. The problem is that taxes are
too high. Lower taxes and there's no need for havens.

~~~
anigbrowl
You park your capital somewhere because you like the commercial, legal and
financial infrastructure. Insofar as your financial mass distorts economic
spacetime for everyone int eh vicinity, it's not unreasonable that you will be
asked to pay some of the costs of said distortion. If you stay in a hotel
that's only half-full and make your bed before you check out, would you expect
your stay to be free? Probably not.

I'm being a bit tongue-in-cheek here, but your repeated claims that taxes are
too high presupposes some objectively correct level of taxation. In the real
world, what happens is that tiny poor jurisdictions set tax rates that would
be economically unsustainable but for the prospect of attracting some huge
international firm whose revenues are so big that even a tiny percentage of
them is a lot of money for the poor jurisdiction, and the extra administrative
costs of domiciling the corporation there are less than the difference between
the unusually low tax rate and that of a more economically logical place for
the headquarters, based on actual factors of production.

Why should taxes come down to the level of whatever the poorest country is
willing to charge in order to attract itinerant capital? Why not (as we are
sort-of in the process of doing) just deny market access to firms that don't
want to pay prevailing rates?

It's not that I hate capital as such, but as an individual I have to pay some
sort of taxes and my international economic movements are somewhat restricted,
because of the basic fact that people can impose costs on an economy as well
as contribute to it. I'm not enthused about paying taxes on the income I
receive in return for my work product, but I recognize that there's a _quid
pro quo_ here as I prefer to live in a civilized society and transact business
using money rather than live in a cave and subsist on fish or something. I
don't care for the idea that having a large sum of capital should exempt one
from these rules, in addition to the obvious economic advantages that said
capital provides (and which I slightly envy but do not resent).

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lumberjack
Is Jersey really powerful enough to create a tax haven? Or is it that powerful
people in foreign governments purposefully let Jersey exist so that they can
benefit from its existence?

Basically, what I'm questioning is whether the tax haven is Jersey's doing at
all. Of course they are complicit but I don't think that it's up to them to
decide to be a tax haven.

~~~
TheOtherHobbes
Jersey is effectively owned by the Queen, albeit rather indirectly through her
role as Duke (sic) of Normandy.

In practice the day to day running of the Channel Islands is left to what's
called the Privy Council, but the Queen gets final say.

Parliament isn't involved.

If the Queen objected strenuously to Jersey's role as a tax haven, it would
never have become one.

Jersey is one of those edge cases where the feudal nature of the British
establishment becomes obvious. Parliament isn't quite only for show, but a lot
of wheeling, dealing, and money hiding goes on behind the scenes. Neither the
British parliament, nor City regulators, nor the EU have much oversight.

~~~
pm24601
So does this mean the Queen is still the absolute ruler of some random bits of
real estate?

I always thought that the Queen was reduced to a figurehead status.

~~~
toyg
UK constitutional affairs are crazy; believe me, I've looked at them at
several times. It's a rabbit hole of ad-hoc agreements for little bits of land
here and there, acquired or controlled at various points in time by feudal or
commercial means, and just maintained as they were or with minimal
harmonization. It's the same at all levels, from the smallest of towns to the
humongous London (the City or the Metropolitan Authority? it's all a mess...)
to Crown Dependencies, Overseas Territories, etc etc.

You then couple this legal patchwork with Common Law and a formalized-but-not-
quite-fully-consistent parliamentary process, evolved day-by-day over several
hundred years, and you can understand how very few people at any given time
actually know who really _should_ be in charge of this or that. What matters
is that the right someone should be considered in charge at the right time on
the right matter, correctness be damned. It's an extremely pragmatic stance on
Power: it decouples highfalutin declarations of what Power is and where it
comes from, in favour of simply making sure that Power exists and can be
exercised for everyday purposes by trusted insiders without facing a riot.

The current system has been running continuously for more than 300 years (and
it's not incredibly different from the one it replaced, which was almost 600
years old at the time). Imagine maintaining a custom backend for 300 years,
piling hack over hack because you're never allowed to rewrite it all from
scratch. That's what the British system basically is.

But going back to your question: of course the Queen is a figurehead, but it's
_because she decides to be so_ , as British monarchs have done since the
Glorious Revolution. In theory, she (or her heirs) could, at any time, try to
force the constitutional compromise, reasserting everyday powers that today
are in Parliament hands (the list grows longer every year, as it often happens
with elderly rulers)... but there is really no reason for her to do so: she is
well looked after, paid handsomely to basically be a 365/24/7 global PR
representative for her country, and allowed to own a large amount of wealth
and property, some of which she (or rather her heirs) can directly manage and
profit from (Duchy of Cornwall etc). Why would you give up all that and
precipitate a disastrous conflict and potentially a civil war? For some
misplaced pride of power, at 89, after having seen through (and won) the Cold
War?

So the powers stay there, she just doesn't use them (and would likely be
rebuffed if she tried too hard to); she _exercises influence_ were strictly
necessary and that's enough to keep everyone happy. It's a bit like owning
nuclear weapons without ever using them.

This whole setup is also the reason some people still worry about the return
of "activist" monarchs. HRH the Prince of Wales at various points tried to
wield his unwritten power a bit... ungraciously, stoking these fears, but he
seems to have recently accepted that his reign will be too short to really
worry about, so we should be ok.

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branchless
The UK controls what Jersey does and lets it do it. They have loads of other
tax havens too. Let's hope the rich get what's coming to them and the people
of the UK can eventually be free of the cancer that is The City.

People all over the world would be better off if The City is crushed.

~~~
vixen99
And what is coming to the wealth creators? I guess you mean the 1% who
contribute 30% of income tax in the UK for instance. Just wondering how you're
going to make up the deficit (or what cuts you'll make) when they 'get what's
coming to them' as you so crudely put it.

~~~
vkou
And here I thought that people actually building widgets in factories are
wealth creators... As opposed to having your name on the deed to the factory.

~~~
gozur88
Not really, no. Without someone willing to risk money creating the factory
those people would be poking the ground with sharp sticks.

~~~
vkou
Without labour working in those factories, producing goods, those deeds are
about as valuable as toilet paper.

You're confusing creating value with economic velocity. Mere ownership cannot
create value. Mere ownership can change the rate at which money circulates in
the economy.

~~~
gozur88
You are completely ignoring the value of risk. Labor is just one input among
many to widget making. Without somebody willing to take the risk, to sink
money he has into the widget building business, it just doesn't happen.

This is why capitalism works far better than the alternatives.

~~~
vkou
So, before capitalism, people didn't build widgets?

My point is that labour does not need capital to produce value (Although
access to capital can increase the amount of value labour can produce.)
Capital without labour is, quite obviously a lame duck.

Crediting the super-rich (A very few exceptions aside) for creating wealth is
nonsense. In the best case, the people they employ created their wealth - said
people just ended up keeping less/spending more of it. In the worst case,
collecting rents created their wealth.

~~~
gozur88
>So, before capitalism, people didn't build widgets?

There was no "before capitalism".

>My point is that labour does not need capital to produce value (Although
access to capital can increase the amount of value labour can produce.)
Capital without labour is, quite obviously a lame duck.

Labor without capital is the same duck. Creating a business is risky, and
someone has to be on the hook for that risk.

>Crediting the super-rich (A very few exceptions aside) for creating wealth is
nonsense.

The super-rich are a sideshow. Most "capitalists" out there are people like
you and me putting money into their 401(k) every paycheck.

~~~
alextgordon
How do you define capitalism? There are places that have _money_ but lack
sufficient property rights to support a system of capitalism.

i.e. "it's my land because I live here and work on it" vs "it's my land
because I own a title deed as recognised by some authority".

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jimworm
Speaking of havens, does Jersey have enough independence to become a data
haven?

~~~
toyg
Yes, but it's still ultimately under direct control of UK forces. If GCHQ
wanted to tap your cables, they would do so in the same way as in Britain.

~~~
charlesdm
Are you sure about that? I was under the impression that wasn't possible.

~~~
toyg
Jersey is under UK military control, it even has a formal Territorial Army
regiment, so it's certainly possible in factual terms.

In legal terms I honestly don't know, but after Snowden I thought we agreed
that the law is no obstacle for these people.

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melling
There's a Jersey in England?

fuhgeddaboudit!

~~~
irremediable
This may shock you, but we also have a York and a Hampshire.

~~~
gozur88
You should have named them "Old York" and "Old Hampshire". This way is
confusing.

"Olde" would be acceptable, too.

~~~
mikeash
I would like to renew my periodic proposal to replace all names with UUIDs.
For example, the York in England could be renamed to
E4D24E55-D779-402A-90D4-9EBE41FB2AA4. England itself could become
62F2B833-2462-4F64-A071-2887FF46105A. The "New" York in the colonies could be
renamed to D6EE5383-2D68-4CC2-BCED-CDBB2B7661E0. This would eliminate all
confusion.

~~~
gozur88
We'll have to think up a new tune for Kandler and Ebb's classic
_D6EE5383-2D68-4CC2-BCED-CDBB2B7661E0, D6EE5383-2D68-4CC2-BCED-CDBB2B7661E0_

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sandworm101
So not collecting taxes didn't generate enough revenue to keep things in the
black?

