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Jersey Refutes Tax Reports

by Amanda Banks,, London

13 December 2010

Jersey Finance on December 9 moved to correct erroneous reports in the media that, based on statements from the UK Treasury, Jersey would be required to scrap its zero-ten regime.

Jersey Finance’s comments come after the meeting of EU’s Economic and Financial Affairs Council (ECOFIN) where Jersey and the Isle of Man’s 0/10% tax regimes were discussed, and a report presented by the EU Code of Conduct Group was endorsed.

Following the meeting, Channel Online TV obtained the following statement from HM Treasury on the Crown Dependencies' tax regimes, and on the outcome of the ECOFIN meeting:

"On September 23, the Code of Conduct for Business Taxation Group discussed Jersey's zero-ten Corporate Tax Regime and the Isle of Man's New Tax Legislation."

"After an exchange of views with those concerned (Jersey and IoM reps attended the Code to make an opening statement and answer questions), the Code Group invited the EU Commission to prepare draft evaluations for the next Code meeting on November 19.”

"The EU Commission's evaluation focused on the operation of the zero/ten regimes as a whole, not merely the deemed distribution and attribution provisions in isolation.”

"The EU Commission considered that taken as a whole, the systems were designed to offer a 0% tax rate to foreign investors (although some sectors are not taxed at the 0% rate), whilst avoiding residents benefiting from the 0% tax rate.”

"Following a discussion of the Commission's evaluation, the Group agreed that Jersey's zero-ten Corporate Tax Regime and the Isle of Man's New Tax Legislation give rise to harmful effects. This was duly noted by ECOFIN.”

"Under the terms of the Code of Conduct for Business Taxation, the UK is committed, within its constitutional arrangements, to ensuring that the principles of the Code are applied in its dependent and overseas territories. Both Jersey and the Isle of Man made voluntary commitments to abide by the Code in 2002. The government expects Jersey and the Isle of Man to abide by those commitments and implement the abolition of the harmful measures.”

"We are ready to offer support to Jersey and the Isle of Man in implementing the changes necessary. Although Guernsey operates a zero-ten Corporate Tax regime similar to those operated by Jersey and the Isle of Man, its regime is not being assessed as Guernsey was deemed by the Group to have made a strong enough public commitment to move away from its current regime. The UK is supportive of Guernsey's efforts to move towards a normal, internationally-acceptable business tax regime."

In a statement on Decemeber 8 the Jersey government reiterated that it is the interaction of the Deemed Distribution rules with the business tax regime that is the main focus of the review, rather than the zero-ten system as a whole.

Geoff Cook, CEO of Jersey Finance, added on December 9:

"The types of headlines we have seen in the local media have seriously misunderstood the situation. The content of the UK Treasury's comment uses some very unclear language, but in no way actually contradicts my understanding of Jersey's stance on the matter.”

“They are correct in saying that the entire zero-ten regime was reviewed, however any implication that the entire regime was viewed as harmful is not correct. As already confirmed by our government, my understanding is that the interaction of Deemed Distribution is the element considered to be potentially harmful, was subject to a paper by the EU Commission, and is now the key area of focus for Jersey.”

“The UK Treasury's press release also refers to wanting to support Guernsey to “move towards a normal, internationally acceptable business tax regime", which is also extremely unclear, as to my knowledge, there is no "normal, international" business tax regime, with approaches to tax varying extensively throughout the world, depending on the needs and economic structure of each territory.”

Concluding, Cook stated: “While interaction of Deemed Distribution may change, depending on the formal assessment of EU Code Group, zero-ten is still a viable, strong regime for Jersey and its finance industry, ensuring we remain competitive and provide stability."

The Jersey government said on December 8 that a request for the appointment of a High Level Working Party to assess the islands' tax systems had been granted by ECOFIN. This high level group, according to the government, will "determine what the Code means by business taxation; whether the scope of the Code goes beyond company tax to include shareholder taxation; and whether this impacts on [Jersey's] regime." Lastly, the Jersey government disclosed that it would consider changes to the island's regime when the findings of the group are published, not later than June 2011.

TAGS: Isle of Man | tax | business | European Commission | financial services | corporation tax | Guernsey | Jersey | United Kingdom | European Union (EU) | services | Europe

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