Guernsey Corporate Tax Changes Unlikely

by Phillip Morton, Investors Offshore.com

21 September 2011

Guernsey Chief Minister Lyndon Trott has welcomed the outcome of the EU Code of Conduct Group's review of the business tax regimes in Jersey and the Isle of Man, noting that this should provide greater certainty for businesses over the future of Guernsey's 'zero-ten' tax regime.

In October 2009 the three Crown Dependencies (Guernsey, Jersey and the Isle of Man) were informed by the UK Treasury that the EU Code of Conduct Group on Business Taxation no longer deemed their 'zero-ten' corporate tax regimes to be compliant with the ‘spirit’ of the Code, with many EU member states considering their level of tax competition to be ‘predatory.’

In June 2010, the Code Group announced that it would be conducting a review to examine the business tax regimes in Jersey and the Isle of Man after identifying 'harmful' elements. Guernsey was permitted to conduct its own review on the understanding that it too would adapt its regime if necessary upon conclusion of the review.

The latest announcement from the Code Group on September 13 affirms that proposed amendments to Jersey's and the IOM's tax regimes which entail the abolition of deemed distribution provisions would bring the two territories' regimes into line with European standards.

The decision, which must first be adopted by European Finance Ministers, means that the 'zero-ten' tax regimes in place in the three territories would continue to be internationally accepted.

Prior to the latest announcement, Guernsey had been considering a territorial tax regime with a headline rate of 10%, with various exemptions. However, according to the island's Chief Minister, these proposals will likely be abandoned should the Code Group's findings be adopted by ECOFIN.

A statement from Trott said:

"We will continue to monitor closely the review process up to the ECOFIN meeting in December, and we will also continue to monitor the Code Group's ongoing assessment of Gibraltar's territorial system.”

"As consistently stated, when all of the relevant Code Group processes are concluded we will set out our next steps, informed by our ongoing dialogue with business and regulatory stakeholders, and in line with the clear principles stated throughout our own review process.”

"While I am not in a position to pre-empt the outcome of our own review process at this stage, I can say that the stated outcome of Jersey's Code Group review does significantly reduce the likelihood that substantial changes to Guernsey's corporate tax regime will be required.”

"I have consistently said that the most likely outcome is that Guernsey and Jersey end up with very similar corporate tax regimes. Only last week I shared a platform in both Guernsey and Jersey with Jersey's Chief Minister Terry Le Sueur, and we both agreed that that is very much still the case."

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