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Jersey Questions EU Tax Review

by Amanda Banks,, London

29 November 2010

The Jersey government has released a statement noting its opposition to a paper by European Commission officials which asserts that the island’s deemed distribution provisions, and the combined effect of taxation at company and shareholder levels, come within the scope of the Code of Conduct Group's review of business taxation in the jurisdiction.

The Jersey government has contested the European Commission's paper, endorsed by the Code of Conduct Group, which opines that the anti-avoidance measure does fall within the remit of the business taxation, being "discriminatory and therefore in conflict with the code".

Jersey believes that the island’s deemed distribution provisions relating to the taxation of company shareholders should not play a part in the review as it considers the provisions to fall under personal taxation, not business taxation. Furthermore, the Jersey government notes that the review appears to be primarily focused on these personal tax provisions, suggesting the review's stated purpose is flawed.

The Jersey government says:

“Representatives from Jersey have contested both points and their view remains that Jersey’s anti-avoidance measure is personal taxation and not within the scope of the code. At the same time, Jersey has offered to consider alternative anti-avoidance measures that would be more in accord with the practice of the member states and therefore not open to dispute.”

“Jersey has been informed that there has not yet been a formal assessment by the Code Group and that there is a further process to go through before a final conclusion is reached.”

“It is understood that the Code Group is proposing a review by a High Level Tax Group, which will determine what the code means by business taxation and whether this definition goes beyond corporate tax to include shareholder taxation. Jersey has been told that there was consensus on the part of Code Group members in support of the commission's paper and that the present 0/10 regime, as it stands, [is] harmful.”

Treasury Minister, Senator Philip Ozouf, commented: "We believe, from the information we have received, which is supported by previous statements made by ECOFIN in 2003, by the nature of the discussion at the Code Group meeting in September that Jersey attended, and by the commission's paper discussed at the Code Group meeting, that the focus is on the deemed distribution provision.”

“With the exception of that provision, the 0/10 tax structure has not been formally addressed by the commission or the Code Group.

“Therefore, with the exception of this anti-avoidance measure, nothing has been conveyed to the island's authorities that would indicate that the present 0/10 tax structure is in conflict with the code criteria. This is fully in accord with the view expressed by the island authorities to the Code Group and the commission."

The Jersey government made its comment after the recent meeting of the EU Code of Conduct Group in Brussels where the anti-avoidance provisions of the Isle of Man and Jersey’s corporate tax regimes came under scrutiny. Jersey, the Isle of Man and Guernsey were alerted earlier this year that they would need to revise their corporate tax regimes to bring them into line with changing international standards.

Jersey’s deemed distribution rule is included in the island’s personal tax code, and seeks to ensure the taxation of individuals’ holdings in profit-making companies as their respective holdings appreciate. A 'deemed distribution' is presumed by the government and tax is liable on the amount irrespective of whether a distribution is disbursed to the company shareholder.

TAGS: individuals | Isle of Man | tax | investment | business | European Commission | law | equity investment | corporation tax | Guernsey | Jersey | dividends | standards | European Union (EU) | Europe

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