EU Directive Means 'Substantial' Changes For Guernsey Businesses

by Jason Gorringe, Tax-News.com, London

18 March 2003

The chief executive of the Guernsey Promotional Association, John Bridle, has warned that the impact of the European Savings directive will mean many companies having to rethink the way they conduct their business.

According to a BBC News Online report, he said of the new regime: "It will make a substantial change to the way businesses operate in Guernsey," adding: "It will impact both on the way they order their relationship with their clients and the way the island operates in terms of taxation."

The GPA has published a guide to the directive on its website. Setting out Guernsey's role under the new directive, it explains that: "The Advisory and Finance Committee has therefore accepted that as a responsible member of the international community, Guernsey will respond positively to the EU tax package, while protecting the Island's economy and having regard to the level playing field principle."

There are two main elements to the impending EU tax reforms that will directly affect Guernsey: The Code of Conduct on Business Taxation and the Draft Directive of the Taxation of Savings. The former is aimed at stamping out harmful business tax measures considered by the EU to be detrimental to the Single Market. According to the GPA website:

"The Code of Conduct Group found five Guernsey tax regimes that were harmful. However, under the intended corporate taxation strategy announced last November, each of these measures would be in effect abolished with the introduction of the new general corporate taxation rate of zero per cent."

The Draft on Taxation of Savings ensures effective taxation of the interest on savings held by residents of EU member states. This will be carried out by either a retention or withholding tax, or the exchange of information with other states. The GPA website details the schedule of the retention tax thus:

1 January 2005 - 31 December 2007 - a retention tax of 15%

1 January 2008 - 31 December 2010 - a retention tax of 20%

1 January 2011 until the end of the transitional period - a withholding tax of 35%

Full implementation of the directive may still be quite far off however, and slippage could put the compliance date back to January 1 2005. Last minute hitches at the previous ECOFIN meeting meant that unanimous agreement has yet to be reached by all the states concerned, and there are still some unresolved issues with non-member states affected by the directive, most notably Switzerland. Agreement has now been deferred to the next ECOFIN council meeting on March 19.

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