As high-tax nations fulminate against low-tax jurisdictions, it's encouraging to find a wisp of good news in the offshore tax arena. And such is the case with a recent agreement between France and the island of Jersey, a low-tax jurisdiction off the coast of England.
On March 23, 2009, France and Jersey concluded a tax information exchange agreement (TIEA). Unlike every other TIEA I've reviewed, this one wasn't merely a one-sided demand for banking and financial information to flow to French tax authorities. Instead, the France-Jersey TIEA actually provides some benefits for Jersey. Investment funds and real estate holding structures in Jersey will now qualify for exemption from a 3% tax assessed annually on the fair market value of real property located in France.
This may not sound like much, but it's a revolution given the history of TIEAS. These agreements first came into effect in the 1980s, when the United States unilaterally canceled regular tax treaties then in effect with numerous low-tax jurisdictions: the Netherlands Antilles, the British Virgin Islands, and many others. (Like all tax treaties, the ones the U.S. Treasury canceled reduced U.S. withholding taxes, avoided double taxation, and called for tax disputes to be resolved by mutual agreement.)
After canceling the treaties, the U.S. Treasury then strong-armed low-tax jurisdictions into signing one-sided TIEAs that required them to disclose U.S. interests in bank accounts, mutual funds, IBCs, and asset protection trusts. The information had to be disclosed even if bank secrecy laws in the low-tax jurisdiction otherwise protected it. What did Treasury offer in return? Very little: only negligible benefits, such as permitting U.S. corporations to deduct the costs of conventions in these jurisdictions.
In the last 25 years, the U.S. Treasury has forced dozens of low-tax jurisdictions to sign TIEAs. Most meekly complied, although pending legislation in Congress still seeks to penalize these same jurisdictions for the "crime" of having low tax rates.
As time progressed, other high-tax countries got into the act, drawing on a model TIEA published in 2002 by the Organization for Economic Cooperation and Development (OECD). As before, the model TIEA's intent is clearly to force low-tax jurisdictions to disclose financial data to high-tax jurisdictions. After the OECD threatened sanctions against low-tax jurisdictions failing to sign TIEAs, dozens have come into effect.
And that's why the France-Jersey TIEA is such a big deal. To the best of my knowledge, this is the first TIEA that provides any meaningful benefit whatsoever to the low-tax jurisdiction signing it.
Let's hope this is the beginning of a trend. If low-tax jurisdictions are to be forced to end bank secrecy and provide authorities in high-tax countries with unfettered access to financial records there, they should receive some benefit in return. The France-Jersey TIEA is a first step toward this worthwhile goal.
Copyright © 2009 by Mark Nestmann
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