Guernsey's Chief Minister, Lyndon Trott, has made a statement to the local parliament outlining the current position regarding the Island's corporate tax regime.
The Chief Minister said: "The intention of this statement is to provide further clarity on the status of Guernsey's corporate tax review in the light of the EU Code of Conduct Group's recent reviews of the Jersey and the Isle of Man tax regimes.....On 13th September the EU Code of Conduct Group on Business Taxation assessed proposals by Jersey and the Isle of Man to revise their zero/10 corporate tax regimes in order to conform to the EU Code of Conduct on Business Taxation. Those proposals were the removal of the deemed distribution and Attribution Regime for Individuals mechanisms of the corporate tax regimes of Jersey and Isle of Man respectively.
"The Code Group took the view that by removing these features of the two tax regimes they would become compliant with the Code of Conduct on Business Taxation principles. As I informed the Assembly in June, the UK had previously stated that, in principle, and without the use of any other anti-avoidance measures, a zero/10 regime on its own, without deemed distributions could well be Code compliant but that the view of other key Member States would be key in the formal assessment. As is now apparent, the views of the other Member States in the Code Group are now aligned with those of the UK. That decision now awaits a final decision and ratification by The European Council of Finance Ministers.
"The outcome of the formal assessment of Jersey and the Isle of Man proposals is indeed welcome as it now provides a degree of certainty and clarity of the view of the Code Group on zero/10 without 'deemed distributions'. We have known since June 2010, when we met with the Chair of the Code Group, that it was this measure, which in the words of the Chair, 'effectively 'ring fenced' the zero rate for non-residents', that was considered technically non-compliant, irrespective of any emotional antagonism that any Member States had to zero rate regimes in general.
"What was not known with certainty until September 13th was whether removing this 'ring fence' alone was sufficient to alleviate the concerns of certain key Member States of the Code Group, particularly as the Code Group had stated that it viewed the regimes 'as a whole' as harmful and it had made very clear that it viewed any attempt to replicate the effects of deemed distributions through the use of other anti-avoidance procedures unacceptable.
"What is now apparent is that the assurances given by both Jersey and the Isle of Man that no attempt will be made to replicate the effects of deemed distributions through general anti avoidance rules have been accepted. This was the critical point, as we know that there were certain Member States that viewed removing these provisions as fiscally unsustainable, due to potential tax leakage, and thus irrespective of the UK technical assessment, their acceptance of the proposed revisions could not be guaranteed.
"I also communicated to the Assembly in June that the UK had separately stated that it would support the introduction of a territorial regime in the Crown Dependencies, as it has for Gibraltar, and that Gibraltar's new territorial regime will be informally assessed by the Code Group in September. However, we now know that the informal assessment of Gibraltar's territorial regime did not take place on 13th September, as had been expected, and has been deferred until later this year.
"Again, I stated in June that once both these assessments were completed, Guernsey would then have sufficient clarity on the views of the Code Group on both the zero/10 and the Gibraltar territorial regime for our own evaluation of all of our options to be undertaken and that until then, any decision and accompanying publication of any Green Paper on our own direction of travel, would be premature. Over the course of the last two years we have repeatedly made it clear that Guernsey will not, through either the timing of any implementation process or indeed the review process itself, undermine our economy by placing it at a competitive disadvantage to other jurisdictions."
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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