KPMG Guernsey Warns Over Controlled Foreign Company Provisions In UK Budget

by Jason Gorringe, Tax-News.com, London

23 April 2002

Tax experts in Guernsey have followed Jersey's lead in expressing fears that provisions introduced in last Wednesday's UK budget could adversely impact on the Channel Islands.

Speaking at a KPMG breakfast briefing on Thursday, KPMG managing partner, Jonathon Hooley, expressed especial concern over enabling legislation which would allow the British government to alter the tax treatment of controlled foreign companies (organisations which are non-resident in the UK, but which are significantly controlled by UK-based interests) in jurisdictions which are considered to allow 'harmful tax practices'.

In view of the current dispute over information exchange on non-resident savings interest, tax experts in both jurisdictions feel that there is a possibility that the Channel Islands could fall into that category, which would have a serious adverse effect on a number of Jersey and Guernsey based companies.

'The press release does not detail what practices are likely to provoke such a reaction but it appears that proposed provisions are designed to "encourage" certain jurisdictions to accept the proposals contained within the code of conduct on business taxation,' Mr Hooley told delegates.

A report in the Jersey Evening Post last week cited retail banking operations such as Barclays and RBSI, and firms such as A. de Gruchy, as those which were likely to be affected by any changes.

Although Guernsey holds a similar position regarding EU proposals on the exchange of information on non-resident savings interest, it has thus far escaped the harsh treatment meted out by the British government to Jersey. The UK authorities are keen to secure agreement on this issue, as there are fears that the proposed alternative, a withholding tax on such interest, would harm the country's lucrative international bond market.

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