France blacklists Jersey, BVI

On Thursday France added Jersey, British Virgin Islands (BVI) and Bermuda to its list of non-cooperative states, leaving LPs based in these popular private fund domiciles exposed to a 75 percent withholding tax on any gains received from French private equity funds from January 2014 onwards.

The three jurisdictions join Botswana, Brunei, Guatemala, the Marshall Islands, Montserrat, Nauru and Niuet who were already on the blacklist.

Capital gains on shares in French companies realized by an investor domiciled, established or incorporated in the blacklisted jurisdictions is also subject to the 75 percent tax.

The blacklisting is likely to deter structuring investments in French funds or French companies through non-cooperative states such as Jersey, said Raphaël Béra, Paris-based tax lawyer with SJ Berwin. He added that private equity vehicles located onshore/in EU jurisdictions (such as Luxembourg) may be preferred to the non-cooperative locales by investors.

A spokesperson for the Jersey government said “they were very surprised to learn of Jersey’s inclusion on this list and we have contacted the French authorities to seek an explanation.” 

The spokesperson added the government's current understanding of the issue is that the blacklisting is a result of some outstanding tax information requests not yet received by French authorities, which “we are confident can be resolved, if necessary through judgments obtained through the Royal Court.”

However, one offshore lawyer told PE Manager that France has yet to issue a formal reasoning for the inclusion of Jersey, BVI and Bermuda on its blacklist. The French Ministry of Finance was unavailable for a request for comment by press time.