Guernsey Tax Regime Set For EU Review

by Ulrika Lomas, Tax-News.com, Brussels

02 November 2011

The European Union Code of Conduct Group on Business Taxation has resumed its review of Guernsey's corporate tax regime in order to ascertain whether it contains any 'harmful' elements.

According to the BBC, Chief Minister Lyndon Trott said that Guernsey had initially anticipated that the review would occur after the EU Economic and Financial Affairs Council's (ECOFIN's) November meeting, but said that an early review would nevertheless provide clarity for investors over the future of the territory's zero-ten tax regime, under which the majority of companies pay 0% corporate tax.

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.

An announcement from the Code Group on September 13 affirmed 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 ECOFIN, 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.

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