EU VAT requirements do not apply in the Channel Islands. Situated off the northwest coast of France, the Islands comprise Jersey, Alderney, Guernsey, Herm and Sark. Each Island is self-governing with its own legislative assembly and system of law, albeit the British government is responsible for the Islands' defence and international relations.
Jersey's VAT exemption, coupled with an EU VAT law that exempts VAT on goods imported to Member States that are valued between €10 and €22, means that companies based in Jersey can supply goods direct to customers within the EU free of VAT.
Accordingly, the islands are an ideal base from which to sell items like CDs and DVDs at a lower price than is possible from the UK, which have to apply the UK VAT rate of 17.5%.
The Sunday Telegraph reports that Jersey is honouring its existing licences, granted to retailers including Tesco, Amazon.co.uk, Asda and Woolworths; it is simply restricting the grant of new licences. The island has seen an increase in the number of UK businesses using Jersey as a base – and it wants to curtail any abuse of the Island's position that accompanies this growth.
Jersey's Deputy Gerald Voisin, President of Economic Development, said that the type of business "where UK companies simply divert sales through Jersey" is against the island's economic interests and damaging to its reputation for integrity, good government and principled regulation.
He characterised the diversion through Jersey of VAT-free DVDs and CDs to UK consumers as low value activity that does not create local jobs, and a business model that has resulted in negative publicity for the island.
