Earlier this year, the European Union code of conduct group on business taxation said that the deemed distribution provisions of Guernsey’s so-called zero-10 corporate tax regime meant it was harmful. Accordingly, at the end of June the Guernsey parliament, the States of Guernsey, agreed to repeal these provisions from 1 January 2013.

Under the zero-10 system most corporations in Guernsey pay no tax, while others pay 10 per cent and a few pay 20 per cent. The deemed distribution currently means island residents who are shareholders of island companies pay income tax on any unallocated company profits, while those living off-island do not.

At a meeting last week, the EU Economic and Financial Affairs Council formally stated that Guernsey is now compliant with the EU code.

ECOFIN has previously reached similar conclusions, in terms of both offending elements and remedies, in relation to the Jersey and the Isle of Man zero-10 corporate tax regimes.