Jersey
hoped this would be enough for it to escape the
reach of the Committee, but it was not to be -
the island has been too successful, so its competitors
in Continental Europe insist on 'transparency'
and a 'level playing field', hoping to force Jersey
into taxing all companies the same.
You
might wonder what power the EU has to force the
Jersey to knuckle under, and indeed the formal
answer is: 'none'. The reality, however, is that
the island is reliant on approval or at least
tacit acceptance of its regime by the OECD, the
G20 and other embodiments of today's global moral
financial police. And indirectly, pressure is
exerted through the UK, which has an ill-defined
but still fairly potent relationship with Jersey.
So
Jersey, small but increasingly wealthy, must choose
from a number of options, none without their difficulties.
It could secede from the UK altogether, but no-one
talks about that nuclear option; it could make
all its corporate forms tax-transparent, like
US LLCs or Limited Partnerships; it could impose
10% tax on all companies; or it could abolish
corporate tax altogether.
The
last option is the one the finance sector would
like, probably, which would cock a massive snoot
at the EU, but the revenue Jersey now gets from
corporate tax would have to be replaced; and that
is what the government is currently agonizing
about. Will the island's citizens put up with
major increases in taxes in order to favour the
financial sector which is the backbone of the
economy?
Theoretically,
it should be possible: there are plenty of other
'low-tax' jurisdictions across the world which
manage without corporate tax.
The
Jersey government itself has outlined a number
of new tax proposals in a Green Paper, summarizing
the findings of a Fiscal Strategy Review, as part
of a consultation with islanders on how best to
generate additional tax revenues, and it's the
outcome of that consultation which will largely
determine its eventual choice among the various
corporate tax options.
The
four major possibilities, as discussed in the
document, involve increases to:
-
Goods and Services Tax (GST);
-
Social Security contributions;
-
Domestic property rates; or
-
Income Tax
Each
of these could provide at least GBP30m to government
coffers, says the document. Other possibilities
include hikes to company registration fees, the
introduction of business licence fees, and the
removal of mortgage interest relief on a transitional
basis.
In
a parallel consultation aimed mostly at the business
community, the government has set out five proposals
for change to the corporate tax regime:
-
Flat rate of corporate tax: The corporate income
tax rates currently imposed would be replaced
with a positive standard rate of tax applicable
to all companies, at a rate of no lower than
10%, imposed on the worldwide income of all
Jersey resident companies, and on the local
source income of Jersey branches of foreign
companies.
-
Transparent treatment for tax purposes: A tax
transparent company would not be subject to
Jersey corporate income tax but effectively
treated the same as a limited partnership for
tax purposes. This would mean that a company’s
income would be assessable upon each beneficial
owner in proportion to their holding in the
company.
-
A territorial system of tax: Companies would
generally only be subject to tax on income that
has its source in Jersey. Non-Jersey source
profits would not be subject to Jersey corporate
tax. Currently, a Jersey resident company is
subject to Jersey tax on its worldwide income
while a non-resident company is only taxable
on income arising in the Island.
-
A repayable tax credit system: Jersey resident
companies would be subject to tax on their worldwide
profits at the standard rate, with a credit
for overseas tax suffered. On distribution,
shareholders would be able to reclaim a proportion
of the tax suffered, leading to a lower effective
rate of tax overall.
-
Abolition of corporate tax: Lastly, Jersey has
proposed abolishing corporate tax entirely.
Its consultation document notes that a number
of jurisdictions, including the Overseas Territories
of the UK, impose no direct taxes. Under such
a system, Jersey resident companies would no
longer be subject to income tax on their profits.
Last
but best! The government however is keeping its
cards close to its chest, and everything probably
depends on the response of the islanders themselves
to the prospect of increased personal taxation,
whether that be through more income tax, more
sales tax, more property tax or even all of them
at once. It's going to be a very interesting time,
if you live in Jersey.
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