Guernsey To Conduct Own Corporate Tax Review

by Robert Lee, Tax-News.com, London

04 June 2010

Following discussions with the European Union, it has emerged that Guernsey’s tax regime will not now come under scrutiny from the EU Code of Conduct Group. Instead, the jurisdiction intends to go ahead with its own review of its corporate tax system.

The Guernsey government has agreed with the EU that it will carry out its own review to amend its regime in line with changing standards surrounding business taxation, beginning with a consultation to be launched later this month, along with neighbouring Jersey.

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/10' 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.’

It emerged in late May however, that the EU would allow Guernsey to carry out its own investigation on possible new measures on an independent basis. The Guernsey government has officially commenced this review by way of a resolution passed by the States of Deliberation.

The Guernsey government’s Policy Council, in a statement on May 28, disclosed that: “On the basis of Guernsey’s 'transparent' approach throughout [the] process, the EU Code of Conduct Group [has] decided not to review Guernsey’s tax regime at this time.”

A Guernsey government official confirmed that the government would soon launch the consultation to discuss amendments to the jurisdiction’s corporate tax system, but that any new regime must meet five criteria, being that it must be competitive, be internationally acceptable, sustain Guernsey’s economy, be based on a simple, solid rationale, and give rise to reciprocal benefits.

The official stated that Guernsey has committed to a review of its corporate tax regime under a presumption of a headline general rate of 10%, underscoring that the safeguarding of tax neutrality of financial services products is paramount.

The detailed rate structure is still under consideration, said the official, and will clearly be informed by the results of the public consultation.

Guernsey first introduced a zero-ten tax regime in 2008, applying a headline corporate income tax rate of 0% on most activities. A higher rate of 10% is applied to the income of businesses regulated by the Guernsey Financial Services Commission, and a 20% rate is applied to income from property development and on companies regulated by the Office of Utility Regulation.

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