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Jersey 2013 Budget Includes Anti-Avoidance Rule

by Jason Gorringe,, London

19 October 2012

From January 1, 2013, the Jersey tax regime will include anti-avoidance provisions to prevent Jersey residents from avoiding tax through the use of Jersey companies.

The amendments, announced in the 2013 Budget, will ensure that when taxpayers extract profits from a company, by whatever means, that income will be subject to income tax. However, if a company reinvests its profits to grow its business, neither the company nor the shareholders will be taxed.

The new rules partly work by broadening the definition of a distribution. The calculations use the taxable profits reported by the company, and hence anything which is not taxable in the company, such as capital gains, is not taken into account. To help people with the new rules the Taxes Office is publishing guidance on the matter.

Last year, the States agreed to withdraw 'Deemed Distribution' arrangements to ensure that the tax regime met the requirements of the EU Code of Conduct Group. In doing so, the Treasury said it would protect revenues by introducing targeted anti avoidance measures to ensure that taxpayers pay the tax that is due.

Another important anti-avoidance measure is designed to ensure individuals employed through a personal services company pay tax on their income in the same way as an employee would. This is being introduced to strengthen the general anti-avoidance rules and make it clearer to taxpayers how and when it will apply.

Furthermore, the government plans to introduce minor administrative changes in respect of: exemptions for non-residents; benefits-in-kind for directors; the penalty regime for non-resident landlords; the additional persons allowance; the Income Tax Installment System regime; and private medical insurance paid by employers, to close loopholes and ensure that revenues are paid when they are due.

Other tax measures include an increase to income tax exemption thresholds in line with inflation. At 3%, this is higher than the average increase in earnings, and is anticipated to save taxpayers more than GBP5m (USD8m).

Income tax relief on life insurance premiums for higher earners will be withdrawn, raising GBP500,000 annually, consistent with the ethos of the '20-means-20' income tax regime.

Impôts duties (customs duties) are to be hiked substantially in 2013, generating an extra GBP2.6m per year.

In sum, the measures will enable the government to continue its fiscal stimulus programme, worth GBP74m, in 2013, a slight decrease on the GBP90m injected into the economy this year.

Delivering the budget, the island's Treasury Minister, Philip Ozouf, said that Jersey was in an enviable fiscal position, noting that not many places in the world were able to add 2-3% of gross value added in stimulus without incurring debt and still maintaining significant reserves.

He said: “This budget responds to the uncertain global economic environment. It sets out how we propose to take positive action, including one of the biggest capital spending programmes ever undertaken in Jersey, providing investment in infrastructure, education, housing, health and social services."

“We have made tough decisions in recent years and now our financial position is strong enough to provide significant resources to support the economy and employment in a difficult environment. Now is a time for the stability and certainty that are critical to support economic growth through increased business activity. Jersey’s fiscal position remains strong as a result of the action taken and the Council of Ministers is determined to keep it that way,” Ozouf concluded.

TAGS: individuals | tax | investment | business | tax avoidance | law | equity investment | international financial centres (IFC) | budget | Jersey | tax thresholds | excise duty | offshore | legislation | legislation amendments | inflation

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