Guernsey Stung By Guardian Article

by Jason Gorringe, Tax-News.com, London

13 April 2006

The Guernsey authorities have taken issue with being referred to in a disparaging manner by the Guardian, the Guernsey Press and Star reported this week.

In a report published at the weekend on the introduction of the zero corporate tax rate in the Isle of Man this month, in response to the EU's Code of Conduct on Business Taxation, the Guardian report suggested that:

"The Isle of Man is in a race to beat rival tax havens such as Jersey and Guernsey, which have in recent years slashed rates to lure the biggest share of the tax avoidance industry - money which mostly flows out of the UK."

It went on to add:

"Critics say that it is difficult to understand why the UK government continues to tolerate tax avoidance on such a scale."

Speaking to the Guernsey Press with regard to the article on Tuesday, Deputy Commerce and Employment Minister, Carla McNulty Bauer slammed the Guardian report, stating that:

"I was quite disappointed to find that the Guardian article was poorly researched and flippant in some of its observations."

The Isle of Man's 0% tax regime is in accordance with the promised five year public taxation plan announced in 2000, and aims to stimulate inward investment by businesses establishing on the Island, and also to provide a consistent treatment across all sectors of the economy, as part of the Island’s commitment to a diversified economy.

However, although the centrepiece of Guernsey's Future Taxation Strategy is a 'zero/ten' rate of corporate tax, under which Guernsey's businesses and corporate entities will be subject to income tax at 0% from the 2008 tax year (although businesses regulated by the Guernsey FSC will be taxed at 10%), the strategy remains to be confirmed by the States authorities.

Deputy McNulty Bauer told the GP&S that she expected this to take place in June of this year.

Meanwhile, the governments of both Jersey and Guernsey both recently took action to prevent online retailers seeking to illegitimately benefit from a tax arrangement in place between the European Union and the Channel Islands from doing so.

Earlier this year, the Jersey government pledged to introduce measures that will make it harder for large retail groups based in the United Kingdom to exploit a 'loophole' in value added tax laws to sell goods VAT-free in the EU.

The "low-value consignment relief" provision allows retailers to sell goods such as CDs, DVDs, computer games and contact lenses that are valued at under GBP18 VAT-free from Jersey and Guernsey back to the UK through websites. The Channel Islands are not part of the EU for VAT purposes and, therefore, goods under this value sent by mail order from the Islands are exempted from VAT.

According to reports at the time, a new licensing system for UK companies operating through Jersey-based distributors will mean that these firms must withdraw from Jersey within a year.

The Guernsey authorities also announced that they would not be granting permission for distributors acting for online retailers located in the United Kingdom to establish warehouses in Guernsey. According to the Financial Times, the Guernsey government also revealed that it would not grant housing licences for the employees of such operations.

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