Until the 20th century, the States relied on indirect taxation to finance the administration of Jersey. The levying of impôts (duties) different from those of the United Kingdom was granted by Charles II and remained in the hands of the Assembly of Governor, Bailiff and Jurats until 1921 when that body’s tax raising powers were transferred to the Assembly of the States, leaving the Assembly of Governor, Bailiff and Jurats to serve simply as licensing bench for the sale of alcohol (this fiscal reform also stripped the Lieutenant-Governor of most of his effective remaining administrative functions). The Income Tax Law of 1928 introducing income tax was the first law drafted entirely in English. Income tax has been levied at a flat rate of 20% set by the occupying Germans during World War II.
As VAT has not been levied in the island, luxury goods have often been cheaper than in the UK or in France, providing an incentive for tourism from neighbouring countries. The absence of VAT has also led to the growth of the fulfilment industry, whereby low-value luxury items, such as videos, lingerie and contact lenses are exported, avoiding VAT on arrival and thus undercutting local prices on the same products. In 2005, the States of Jersey announced limits on licences granted to non-resident companies trading in this way.
The island has a special relationship with the EU provided by Protocol 3 to the UK’s Treaty of Accession in 1973. This relationship cannot be changed without the unanimous agreement of all Member States and Island Authorities. Under Protocol 3, the island is part of the customs territory of the European Community. The common customs tariff, levies and other agricultural import measures apply to trade between the island and non-Member States. There is free movement of goods and trade between the island and Member States. Jersey is not, however, part of the single market in financial services. It is not required to implement EU Directives on such matters as movement of capital, company law or money laundering. Jersey plans to incorporate such measures where appropriate, with particular regard to the island’s commitment to meeting international standards of financial regulation and countering money laundering and terrorist financing.
A number of tax information exchange agreements have been signed directly by the island with foreign countries. Jersey’s Chief Minister signed a TIEA with the United States of America on 4 November 2002 and with the Kingdom of the Netherlands on 20 June 2007. This was reported as the Bailiwick’s first tax treaty with a European state as a state in its own right (and the second after the similar agreement with the United States in 2002). Both TIEAs have been ratified by the States of Jersey and are in force. However, the Federal Court of Justice of Germany ruled on 1 July 2002 (case: II ZR 380/00), that under German law, for the purposes of § 110 of the German Civil Procedures Act (ZPO), Jersey is to be deemed to be part of the United Kingdom and of the European Union as well.
Jersey and Guernsey jointly opened an office in Brussels in 2010 to promote their common interests with European Union institutions. Jersey is particularly concerned about European Union legislation and reforms that may affect its trading partners in international financial centres round the world.
Jersey’s Chief Minister also signed a TIEA with the Federal Republic of Germany on 4 July 2008 and TIEAs with Denmark, the Faroes, Finland, Greenland, Iceland, Sweden and Norway on 28 October 2008 (ratified March 2009). On 10 March 2009, a TIEA was signed between Jersey and the UK. Also in March 2009, TIEAs were signed with France and Ireland, followed by a TIEA with Australia in June 2009, and New Zealand. These agreements will not come into force until they are ratified by the States, the relevant regulations have been adopted and the other party has completed its own domestic procedures.