From Sir Philip Bailhache.
THE Treasury Minister, Senator Philip Ozouf, deserves more support than he is currently getting for his resistance to the pressure from the UK Treasury on the zero-ten policy.

I write that not in any partisan sense but as a lawyer with more than 30 years’ experience of the constitutional relationship between Jersey and the UK. In his excellent analysis of the situation last week, your columnist Rob Shipley concluded by asking rhetorically whether the UK Treasury was ‘playing politics in the most extraordinary of ways’ (JEP, 9 December).

The truth is that the UK Treasury’s approach to Jersey’s interests (apart from a short period after 2002) has been unfriendly or hostile from the start. From information received from our European advisers it is an open secret that the pressure to amend the zero-ten policy is coming not from the EU but from the Treasury itself, which is driving the opposition to the zero-ten policy.

Most European countries are not concerned about the zero-ten policy – for good reason, because it is not materially harmful to any of them. It is the Treasury that for some reason is determined to attempt to undermine Jersey’s economy.

Yet it was the UK Treasury which agreed in 2002 that zero-ten was an appropriate means of compliance with the EU Code Group’s policy on ‘unfair’ business taxation which had been wrongly imposed on the Crown Dependencies in 1998 without our consent, despite the fact that we are outside the EU’s fiscal territory.

Following that agreement from the Treasury, the States proceeded to make substantial changes to our fiscal regime, including the introduction of ‘20 means 20’, the abolition of many tax allowances, zero-ten, and of course GST.

Yet hardly was the ink dry on these major tax changes than the Treasury dropped its bombshell by announcing that zero-ten was not in accordance with the ‘spirit’ of the code after all.

And now, because we are a Crown Dependency, we are in the extraordinarily unsatisfactory position of having the UK Treasury, our arch-critic, purporting to represent our interests in discussions with the Code Group.

The zero-ten policy is, in fact, far from ideal. Yet, despite its defects, it was the only way at the time of ensuring a tax-neutral environment for investors outside Jersey.

They choose to come to Jersey because it does offer tax-neutrality and is a politically stable and professionally efficient place from which to operate. If there is no tax neutrality they will go somewhere else, to the detriment of our economy.

The Treasury Minister should be supported in his desire to take time to consider the best way to deal with a difficult situation that is entirely the making of the UK government.

There is no need to rush. It would be economically damaging to do so.
We have both law and morality on our side. There are at least three reasons to take time and to get it right.

(1) The Code of Conduct on Business Taxation is a political and not a legal initiative. There is no European law, or any law that compels us to jump to do the Treasury’s bidding.

(2) As was recognised by Lord McNally last week, the UK’s obligations to the EU are limited by the ‘constitutional arrangements’ with its dependent territories. Our constitutional arrangements with the UK give us, and not the UK, the power and the responsibility of dealing with matters of tax. It is for members of the States of Jersey and not for EU or Treasury officials to make these decisions. That is the UK’s defence in the unlikely event that one of their EU partners should question what is happening in Jersey.

(3) Jersey has already shown in many different ways that it is a responsible member of the international community. That has been recognised by the OECD, by the Financial Action Task Force, and by the International Monetary Fund.

The Michael Foot report of October 2009 confirmed that view and furthermore showed that Jersey makes a significant contribution to the liquidity of the UK money market. We have entered Tax Information Exchange Agreements with numbers of different countries, including virtually the whole of the EU.

Unlike some other countries we extradite suspected tax fraud offenders to other parts of the world. We offer assistance to law enforcement agencies investigating tax fraud. We can claim to be at least as transparent as most other European countries. We must of course continue to be a good neighbour. We are entitled, however, to take as much time as we need to protect our economy and the interests of the people of Jersey.