Guernsey Parliament Approves Tax Reforms

by Jason Gorringe, Tax-News.com, London

10 July 2006

Guernsey's parliament has passed a set of economic and taxation changes that includes a zero rate of corporate tax and the capping of personal tax at GBP250,000.

The package of measures recently approved includes:

• A zero rate of income tax on company profits, except for specific banking activities which will be taxed at 10%;
• Guernsey residents continue to pay tax at 20% on assessable income;
• Personal tax capped at GBP250,000 on non-Guernsey income and investment income;
• Taxation of Guernsey-resident shareholders on distributed company profits only; and
• Wealth taxes such as inheritance tax and capital gains tax will not be introduced.

"I am delighted that this package has been agreed by the States – it really is very good news for what is an already buoyant finance industry," Peter Niven, the Chief Executive of GuernseyFinance, announced last week, adding that:

"Firstly, this decision provides the industry and its clients with certainty going forward and secondly, the set of measures agreed will further enhance the environment for doing business in the island."

He continued:

"Importantly this package has the support of not just the finance industry but also the much wider business community. The measures reinforce the message that Guernsey is very much open for business and welcomes high net worth individuals."

"They also clearly promote enterprise within the economy as a whole, in particular high-earning, low footprint activities and the feeling within the finance industry is that they will help attract new business to the island, especially activities such as hedge fund management"’

The States of Guernsey approved the set of measures at its June sitting, and the main strands will come into effect from 1 January 2008.

However, the reforms have been attacked by a pressure group for providing the banking industry with an unjustified subsidy.

Richard Murphy, of the Tax Justice Network, a pressure group of tax specialists and economists which opposes tax avoidance and tax havens, reportedly stated last week that Guernsey's 'zero/ten' tax proposals are "probably the largest state subsidy that has been created by any territory in the world for a particular industry".

According to Murphy, the tax reform and the anticipated GBP50 million revenue shortfall will bring about a "strange economic policy".

"To spend GBP50 million to basically subsidise the banking industry and its already very rich clients - let's be candid, that's what they are - is a very strange economic policy," he was quoted by the BBC as stating.

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