IT’S good to know that Jersey is close to the top of the league tables, according to the Trades Union Congress across the water. Unfortunately, it’s a league table that the TUC considers is one of shame.

Obviously with nothing better to do during these recessionary times, the TUC has compiled a list of UK banks which have subsidiaries in ‘tax havens’. I guess we can’t expect the TUC to understand the difference between a tax haven and a reputable international finance centre, so we’ll just ignore this inaccuracy in their research.

The TUC found that Jersey was the second-most popular offshore location for subsidiaries of major British banks. We have 170, which is just ahead of Hong Kong (141), Ireland (119), and Guernsey (68). Top of the table of shame was what one commentator called the ‘notorious tax haven’ of the Cayman Islands with a whopping 262.

This research prompted the general secretary of the TUC, Brendan Barber, to point out that the British government was now propping up many of these banks, whose ‘irresponsible’ behaviour had caused the mess we’re in.

‘Yet even those who come cap in hand to the taxpayer and Bank of England continue to do business in tax havens,’ Mr Barber is quoted as saying. ‘This raises questions about whether part of the objective is avoiding paying a fair rate of tax to the UK – a tax gap that has to be made up by the rest of us.

‘We cannot know the extent of these activities. Indeed, one of the main attractions of tax havens is their secrecy. There is no suggestion that anyone has broken any tax laws, but now that banks have public stakes or trade with the knowledge that the taxpayer stands ready to bail them out, the taxpayer has a right to know the full extent of bank activities and liabilities across the world.

‘We should know where banks undertake their activities, where they record their profits and where they pay their taxes. Country-by-country reporting of their activities is essential if we, the UK taxpayers, are to know the risk we are under-writing.’

THE TUC did their research using the same definition of tax haven as that of the mighty US Government Accountability Office (GAO). As another organisation that has nothing better to do with its time, it researched the 100 largest publicly traded US corporations and found that 83 of them had subsidiaries in jurisdictions listed as ‘tax havens or financial privacy jurisdictions’.

There was some dispute about how these jurisdictions were defined; there were even complaints from the US Department of the Treasury. But the GAO nevertheless stuck to its guns and published its findings using out-of-date and very dubious definitions.

Unfortunately, it can’t be ignored because the GAO carried out the research at the request of two senators, including Senator Carl Levin, who is sponsoring a Stop Tax Haven Abuse bill, which has been supported by President Obama.

Although it is pointed out in the analysis that there is a tax information exchange agreement in place between Jersey and the US, this doesn’t seem to carry much weight. Obviously they didn’t want the details to get in the way of their argument.

So the GAO found that US corporations such as Citigroup has hundreds of subsidiaries in jurisdictions they classify as tax havens or secrecy centres, including 21 in Jersey. This is followed by Morgan Stanley with 19 subsidiaries in Jersey, Pfizer with ten (one of the few non-financial services corporations with Jersey subsidiaries), American Express and J P Morgan Chase with four, Bank of America three and Goldman Sachs one.

So what, you might ask? Indeed, you can ask the same question about the TUC research. The worst that can be said is that this research shows that some of these US corporations and UK banks may actually have established some of these subsidiaries to save tax, although there could be a large number of other reasons as well. Nowhere in either the GAO or the TUC reports is there any suggestion that any laws have been broken.

But that’s the fundamental problem that Jersey has to cope with. The Island can do everything in its power to keep within the law and to adopt the highest international standards, but it will still stand accused of being a tax haven and, therefore, suspicious and shifty in the eyes of some people.

Some will be long-standing critics who have their own agendas. (For example, who was the author of the TUC report? Why, it was none other than Jersey’s friend, Richard Murphy, who in a recent blog says that the Island’s days are numbered. Had the TUC been serious about their tax haven investigation, they might have chosen an expert with at least a semblance of impartiality.) Others simply don’t know what the argument is all about, and where there is ignorance there is often prejudice.

Then, of course, there are those who are just confused. I wouldn’t include the Pope among this category, although the recent report from the Vatican claiming that offshore centres are largely responsible for the current economic crisis certainly doesn’t bring much clarity to a very difficult and complex problem.

The Pope obviously knows what he means when he refers to ‘offshore centres’, but we don’t know who he is targeting. Like so many other critics, he tars all offshore centres with the same brush. Interestingly, in its comment on the GAO report, the US Department of the Treasury says that drawing up lists of tax havens, and trying to simplify such a complex area by lumping them all together is fraught with difficulty. Oversimplification can lead to misunderstandings and mistakes, the letter from the Treasury Department says.

If that message gets through to other critics, then Jersey has a chance of getting rid of its tax haven stigma because it can prove that it is a responsible financial centre, if it is given the chance.
Obviously some people are not going to give it a chance.
Peter Body is editor of Business Brief magazine