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Jersey Considers Tax Future,
by Amanda Banks, Tax-News.com, London
Friday, June 25, 2010
The Jersey government has released its long-awaited consultation document, prepared
in cooperation with neighbouring Guernsey, as part of the EU Code of Conduct Business
Taxation Group's review of its 0/10% corporate tax regime.
Announcing the release of the consultation, Jersey Treasury Minister, Phillip
Ozouf, said:
“This consultation document sets out the background to, and reasons behind,
this review of business taxation, as well as the principles that should determine
Jersey’s corporate tax regime."
“It focuses on technical aspects of corporate tax and sets out possible
alternative structures that could be considered. I would like to know what islanders
think the impact of any changes would be on Jersey as a place in which to do
business.”
“International views on tax are changing and Jersey needs to be ready
to respond. But it will only do so having properly considered the impact on
the Island’s economy and only then if it is in the Island’s best
interest."
“When zero ten was introduced the island lost a significant amount of
corporate tax revenue. This review will investigate whether an alternative regime
can be identified which taxes more companies with business activities based
in Jersey, to replace some of that revenue."
“There is no presumption that any specific one of the alternatives set
out in the consultation document will be adopted and this is an open consultative
process.”
In the consultation document, Jersey has underlined seven objectives for the
new Corporate Income Tax regime, that it must be: compliant with international
standards; competitive; tax neutral; provide an appropriate revenue contribution;
sustainable; simple; and provide businesses with certainty.
As part of an investigation by experts in international tax law, five proposed
structures for Jersey's forthcoming tax regime have been offered:
Flat rate of corporate tax: The corporate income tax rates currently imposed
would be replaced with a positive standard rate of tax applicable to all companies,
at a rate of no lower than 10%, imposed on the worldwide income of all Jersey
resident companies, and on the local source income of Jersey branches of foreign
companies. This regime is similar to regimes operated in numerous countries.
Transparent treatment for tax purposes: A tax transparent company would
not be subject to Jersey corporate income tax but effectively treated the
same as a limited partnership for tax purposes. This would mean that a company’s
income would be assessable upon each beneficial owner in proportion to their
holding in the company. The tax treatment of the company’s income would
then be determined by reference to the residence of its beneficial owners.
Where the beneficial owner is not resident in Jersey, it would be subject
to Jersey tax only on certain Jersey source income.
A territorial system of tax: Companies would generally only be subject to
tax on income that has its source in Jersey. Non-Jersey source profits would
not be subject to Jersey corporate tax. Currently, Jersey operates a residence
basis of taxation, whereby the liability of a company to Jersey tax is defined
by reference to the place of residence of that company. A Jersey resident
company is subject to Jersey tax on its worldwide income while a non-resident
company is only taxable on income arising in the Island. In a territorial
system, the concept of residence becomes largely irrelevant. A company’s
tax liability is calculated by reference to the source of its income, with
only profits sourced from that jurisdiction being subject to tax in that jurisdiction.
A repayable tax credit system: Jersey resident companies would be subject
to tax on their worldwide profits at the standard rate, with a credit for
overseas tax suffered. On distribution, shareholders can reclaim a proportion
of the tax suffered, leading to a lower effective rate of tax overall. This
regime is operated in Malta, where resident companies are subject to tax at
the standard rate of corporate income tax of 35% on the majority of their
profits and companies are required to divide their income into five separate
accounts. The Maltese tax system in general is more complex than that which
could be operated in Jersey.
Abolition of corporate tax: Lastly, Jersey has proposed abolishing corporate
tax entirely. Its consultation document notes that a number of jurisdictions,
including the Overseas Territories of the UK, impose no direct taxes. Under
such a system, Jersey resident companies would no longer be subject to income
tax on their profits. In order to recover the tax revenues lost by abolishing
corporate income tax, it would be necessary to introduce other taxes and/or
charges such as those which exist in other jurisdictions which have no or
zero corporate income tax, such as payroll taxes, business licence fees, bank
transaction taxes, and commercial property taxes.
The government's consultation is open for comment until August 30, 2010.
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