Representatives from the Channel Islands appeared before the European Parliament’s TAXE committee to defend their jurisdiction’s 0% business tax rate. EURACTIV France reports.
To avoid the risk of applying a double taxation to businesses that make financial transactions on their territory, the Channel Islands have opted for a radical solution: a 0% tax rate.
But MEPs were left unconvinced by the justifications offered by representatives from Jersey and Guernsey, at a hearing in the European Parliament’s Tax Rulings Committee (TAXE committee) on Monday (14 March).
This committee was created in the wake of the Luxleaks scandal to investigate the secret deals passed between states and certain multinational companies to cut their tax liability.
After a six-month extension to its mandate, granted in December last year, the committee has concentrated more specifically on the harmful tax practices of companies across Europe.
Jersey and Guernsey are the first territories considered as tax havens to have given evidence to MEPs. Andorra, Liechtenstein and Monaco were expected to talk to MEPs in Brussels on Tuesday (15 March). Some territories, like the Cayman Islands and the Isle of Man, refused to cooperate with the TAXE committee.
Zero tax rate
The representatives of the two islands were faced with a tricky balancing act. They had to explain to the EU lawmakers how their territories’ 0% tax rates weren’t constitute unfair competition, when the lowest rate elsewhere in the European Union is 12.5%.
“The reasoning we use to defend this zero tax rate is that we are a gateway to the EU for funds on the European financial markets,” said Rob Gray, the director of international taxation for the government of Guernsey.
“Since with have very few double taxation agreements with EU countries, if we lift the tax on financial transactions that pass through Jersey, it would lead to double taxation. So we allow the taxation to take place at the place where the value is created. We are avoiding the addition of extra layers of taxation to financial transactions,” he added.
Jersey’s representative took a similar stance on its 0% tax rate.
“Our corporate tax rate is 0%, but we have a higher rate for certain companies that can reach 20%,” said Colin Powel, the government of Jersey’s representative. “There is no specific incentive rate,” he added.
Here again, he argues that the island’s role in facilitating investment on European financial markets justified the zero rate.
But the Channel Islands’ representatives failed to convince MEPs.
“You said that you did not want your territories to be labelled as tax havens. But I don’t see how any other label can apply to a territory that applies a 0% tax rate,” said Paloma Lopez Bermejo, a Spanish Green MEP.
“Times are changing, and the time when a certain number of countries made a business out of unfair tax competition is over,” said Alain Lamassoure, a French Republican MEP (EPP) the chair of the TAXE committee.
“We understand that each country is the master of its own tax system and its various rates. But we can no longer accept that certain states should steal tax revenue from their neighbours,” he added.
Europe’s black list
Jersey and Guernsey both played heavily upon their willingness to cooperate with the EU on taxation. And Jersey has already been rewarded by being taken off the French list of tax havens.
The first pan-European list of uncooperative tax jurisdictions was established by the Commission in June 2015. Of the 85 jurisdictions that appear on this list, 30 tax havens already figure on the blacklists of at least ten member states.
“We think that the jurisdictions identified by the member states based on their tax rates should not appear on the blacklist,” said Rob Gray, stressing that each state has the freedom to set its own tax rates.
“In the context of the committee’s work on the blacklist, we would like a distinction to be made between the jurisdictions that are blacklisted because of their rates and those that are blacklisted because of the rules on controlled foreign corporations (CFCs),” Powel added.
“By appearing on this list it gives the impression that the jurisdiction does not cooperate, while Jersey and Guernsey have shown that they conform to international standards,” he added.
On 12 February 2015, the European Parliament decided to launch a special committee for an initial period of six months, to investigate the sophisticated tax rulings of EU member states that became the centre of a media storm earlier that year.
With 45 members and the same number of substitutes, the TAXE committee's role is primarily to investigate the compatibility of tax rulings with the rules on state aid and tax law.
The special committee will then draft a report, including recommendations on how to improve transparency and cooperation between member states to the benefit of the internal market, European companies and citizens.