‘Landmark’ court ruling has Brexit implications

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Questions were raised by the British tax authorities in an inheritance tax case – Routier and Anr vs Commissioners for HM Revenue, which involved the transfer of capital from a UK estate to a Jersey-based charity – over whether the European Union’s free movement of capital rules applied to fund flows between the UK and Jersey.

HMRC argued that due to Jersey’s status as a Crown Dependency, with close ties to the UK, it should not be treated as ‘third country’ sitting outside the EU and should be subject to the UK’s internal controls on capital movements.

Lady Justice Arden concluded, however, that Jersey was a ‘third country for the purposes of those rules’.

A statement released by the Island’s Law Officers’ Department says that the ruling is a ‘landmark constitutional decision for Jersey’.

It says: ‘This case has particular significance as to how the term “third country” is to be understood and applied and the judgment will prevent unnecessary uncertainty for Jersey as Brexit negotiations continue.

‘Free movement of capital is the only EU freedom which expressly benefits third countries as well as member states.

‘The Attorney General argued that Jersey’s status was that of a “third country”.

‘But HMRC argued that Jersey was not a third country and that the Island’s constitutional relationship with the United Kingdom meant that the relationship was a purely internal one for the purpose of capital movement.

‘This could have meant that Jersey might be denied the protections with respect to capital movements guaranteed to third countries.’

The statement adds that the ruling will mean that Jersey will have the same ‘fundamental rights’ to free movement of capital as many other international finance centres.

If the ruling had gone in HMRC’s favour, capital restrictions could have been applied to cash movements and foreign currency exchanges with the Island by the UK.

The statement says: ‘This judgment further safeguards Jersey’s ancient and independent privileges and reinforces the Island’s standing where its third-country status has already been recognised by EU bodies.’

The Attorney General, Robert MacRae QC, said: ‘This issue had not been considered by the UK Courts before and the Court of Appeal gave us permission to be heard because of the importance of the matter to the Island.

‘It is very helpful that Jersey’s status as a third country for the purpose of free movement of capital has been put beyond doubt.’

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