Despite criticisms that offshore tax havens allow tax evasion and avoidance, a new report by Capital Economics says Jersey benefits the UK economy, generating around £2 billion ($3 billion) in tax revenue a year.

The report, commissioned by Jersey Finance, the promotional agency for the island’s financial sector, says business in Jersey generates more tax for the UK that is lost through the existence of such an offshore centre.

Losses to the UK Treasury through legal tax avoidance are estimated to be no higher than £480 million a year and are probably much less, which is dwarfed by the £2.3 billion generated in tax revenues each year, the report said.

"We have always understood that our activity here in Jersey delivers a net benefit to the UK, but it is now clear from the data in this report that Jersey makes a substantial contribution to the British economy, facilitating huge amounts of foreign investment and providing billions in vital liquidity to the UK banking," said Geoff Cook, chief executive of Jersey Finance.

The report will stir controversy about the role that such international financial centres play in the global system. Some critics claim they siphon off revenues from some countries, adding to tax burdens on ordinary citizens unable to move money offshore. Others defend tax havens for steering investment flows to places where they earn the best returns as well as putting countries under competitive pressure to hold down tax rates.

The Jersey Finance report drew a scornful response from the Tax Justice Network, an organisation that is highly critical of offshore tax havens. It questioned the accuracy of the figures and Jersey's apparent contribution to the UK economy.

"The document contains some interesting statistics, notably on the breakdown of assets it says are held through Jersey structures. But when it tries to move from these figures to paint a picture of Jersey’s contribution to the UK, it quickly veers off into fantasy land. It’s interesting to ask why Jersey has produced a selective report," the organisation said.

The data

Among the statistics presented by the Jersey Finance report was that the island is responsible for inward investment of almost £500 billion in the UK and that £1 in every £20 of money invested by foreign individuals and companies in assets located in Britain is from Jersey.

Additionally, each year Jersey banks send around £120 billion of their deposits to parent operations in the UK, representing 1.5 per cent of the funding of the whole UK banking system.

The report also revealed that two-fifths of all assets administered or managed across Jersey’s financial and wealth management sectors come from markets outside the UK and EU.

Jersey attracts clients who wouldn’t necessarily see the City of London as their first choice of financial centre, the report said. It concludes that the 30 per cent of investment which originates from outside the London time zone would most likely move to New York, Hong Kong or Dubai if Jersey were not available to facilitate funds.

It also warned that 84 per cent of the island's financial services business would be at risk of migrating to other offshore centres such as Singapore or the Cayman Islands if the jurisdiction did not exist.

G8

The report comes at a time when offshore centres such as Jersey have come under increased scrutiny and pressure from governments around the globe looking to clampdown on tax avoidance.

Following the G8 summit in June, Jersey has now confirmed its support to the G8 principles to tackle tax evasion and improve transparency.

Last month, Jersey also confirmed it intended to sign up to the Multilateral Convention on Mutual Assistance, a protocol developed by the Council of Europe and the Organisation for Economic Cooperation and Development that facilitates cooperation between states on tax matters. The island is also close to completing the negotiation of enhanced tax information exchange agreements with the UK and the US.

Although the financial crisis of 2008 sent shockwaves around the globe, Jersey has managed to weather the storm to become one of the world's leading offshore financial centres.

Figures from Jersey Finance show that the net asset value of funds under administration was £192.8 billion at the end of 2012, up from £189.5 billion in the previous quarter, while the total number of live companies stood at 32,503.

The standard rate of income tax in Jersey is 20 per cent; for high net worth individuals there is a preferential tax rate available. Companies are generally taxed at per cent and there is a special 10 per cent tax rate applying to certain regulated financial businesses.

In 2002, Jersey completed its first Tax information Exchange Agreement with the US. It has now signed a total of total of 31, including a significant number with the European Union and G20 nations and most recently with Brazil and Latvia.