Offshore

EU Says Guernsey's "Zero-10" Company Tax Regime Is Harmful

Tom Burroughes Group Editor London 20 April 2012

EU Says Guernsey's

In a potentially major statement by the European Union, Guernsey’s “zero-10” corporate tax regime - a key attraction for investors - has been deemed harmful, prompting lawmakers in the island to adjust distribution rules to retain this rule, Guernsey Finance said yesterday.

Under Guernsey’s zero-10 regime, all companies are taxed at 0 per cent, except for the profits of specified banking activities which are taxed at 10 per cent (and local utilities at 20 per cent). However, Guernsey resident shareholders are taxed at 20 per cent of profits from either actual or deemed distributions, where the latter include dividends, disposal of shares, migrations, liquidations and investment income.

The ruling has been made by the EU’s Code of Conduct Group on Business Taxation. The Code Group had previously ruled similarly in relation to both the zero-10 regimes of both Jersey and the Isle of Man.

Guernsey had argued that the offending element from the Jersey and Isle of Man regimes, known as deemed distribution, was different in its tax system to the extent that the island’s zero-10 regime was actually compliant with the Code Group’s criteria, Guernsey Finance, the organisation representing the island’s financial sector, said.

A statement from Guernsey’s Policy Council said: “Whilst accepting the operation and timing of Guernsey’s deemed distribution regime differed to that of Jersey and the Isle of Man, the European Union’s Code of Conduct Group on Business Taxation this week determined that its de facto effect was the same – and thus harmful.

“We expect to be formally notified of this conclusion shortly and provided a detailed explanation of the European Commission’s technical assessment of the deemed distribution regime in due course. Once we have received detail of the assessment and the substance of the Code Group’s discussion, ministers will be able to meet to discuss what actions are appropriate to recommend to the next Policy Council and States [of Guernsey, the Island’s parliament],” it said.

The Guernsey Finance statement added: “It now looks certain that Guernsey will follow Jersey and the Isle of Man in removing deemed distribution as a way to retain the zero-10 regime as a whole. Guernsey also has a tax exempt regime for collective investment schemes and it is expected that later this year it will be extended further to apply to any vehicle which is part of a fund structure.”

 

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